After the Storm: Natural Disasters and Bank Solvency

Dieter Gramlich, Thomas Walker, Yunfei Zhao and Mohammad Bitar
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Dieter Gramlich: Baden-Württemberg Cooperative State University, Heidenheim, Germany
Thomas Walker: John Molson School of Business, Concordia University, Montreal, Canada
Yunfei Zhao: College of Business and Public Management, Wenzhou-Kean University, Zhejiang Province, China
Mohammad Bitar: Nottingham University Business School, University of Nottingham, United Kingdom

International Journal of Central Banking, 2023, vol. 19, issue 2, 199-249

Abstract: This study examines how natural disasters affect the solvency of banks. It explores (i) whether and how natural disasters affect bank solvency, (ii) how accounting and regulatory measures of bank solvency reflect a bank’s true affectedness, and (iii) whether the effects vary across different types of banks. Analyzing a comprehensive data set on natural catastrophes and detailed financial statements for 9,928 banks that operate in 149 countries, the main finding is that damages from disasters matter: they negatively affect capital ratios, and the severity of their impact depends on a bank’s location, capitalization, and business model. Particularly, the results show that accounting measures of solvency are more sensitive to disasters than are regulatory measures. Evidence of a bank’s sensitivity to natural disasters and the suitability of capital ratios to assess this sensitivity may both be helpful for financial institutions and regulatory authorities in designing appropriate risk mitigation strategies.

JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2023:q:2:a:4

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