The impact of natural disasters on the banking sector: Evidence from hurricane strikes in the Caribbean

Michael Brei, Preeya Mohan and Eric Strobl ()

The Quarterly Review of Economics and Finance, 2019, vol. 72, issue C, 232-239

Abstract: While natural disasters cause considerable damage and a number of studies have attempted to investigate the nature and quantify the magnitude of these losses, there is a paucity of empirical evidence on the impact on the banking sector. In this paper we construct a panel of quarterly banking data and historical losses due to hurricane strikes for islands in the Eastern Caribbean to econometrically investigate the impact of these natural disasters on the banking industry. Our results suggest that, following a hurricane strike, banks face deposit withdrawals and experience a negative funding shock to which they respond by reducing the supply of lending and by drawing on liquid assets. There are no signs of deterioration in loan defaults and bank capital. Therefore, the withdrawal and use of deposits rather than an expansion in credit appears to play a significant role in funding post hurricane recovery in the region. This points to the importance of an active reserve requirement policy.

Keywords: Banking sector; Natural disasters; Small island economies (search for similar items in EconPapers)
JEL-codes: G21 Q54 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:72:y:2019:i:c:p:232-239

DOI: 10.1016/j.qref.2018.12.004

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