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How do banks react to catastrophic events? Evidence from Hurricane Katrina

Claudia Lambert, Felix Noth and Ulrich Schüwer

No 94, SAFE Working Paper Series from Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt

Abstract: This paper explores how banks adjust their risk-based capital ratios and asset allocations following an exogenous shock to their asset quality caused by Hurricane Katrina in 2005. We find that independent banks based in the disaster areas increase their risk-based capital ratios after the hurricane, while those part of a bank holding company do not. The effect on independent banks mainly comes from the subgroup of high-capitalized banks. These banks increase their holdings in government securities and reduce loans to non-financial firms. Hence, banks that become more stable achieve this at the cost of reduced lending.

Keywords: catastrophic events; bank regulation; capital ratios; natural experiment (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

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