Flooded credit markets: physical climate risk and small business lending

Luca Barbaglia, Serena Fatica and Caterina Rho

No 2023-14, JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission

Abstract: We document that European banks charge higher interest rates on loans granted to firms in areas at high risk of flooding. At 6 basis points, the average risk premium is rather small, and does not adequately reflect the deterioration of loan performance in the aftermath of flood episodes, however. Firms in flooded counties are more likely to default on their loans than non-disaster firms. Floods reduce securitised credit in the local markets, suggesting that physical risks associated with climate change are borne within the banking sector.

Keywords: climate change; loan default; loan pricing; natural disasters (search for similar items in EconPapers)
JEL-codes: C55 G21 Q51 Q54 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2023-11
New Economics Papers: this item is included in nep-ent, nep-env, nep-fdg and nep-ure
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Related works:
Working Paper: Flooded credit markets: physical climate risk and small business lending (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:jrs:wpaper:202314

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