Understanding the Trembles of Nature: How Do Disaster Experiences Shape Bank Risk Taking?

Jaap Bos, Runliang Li

Research output: Working paperProfessional

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Abstract

This paper examines the impact of natural disaster experiences on banks’ business practices. Using earthquake and banking data for California, we find that banks that have had stronger earthquake experiences change their practices, both as a result of the natural disasters’ effects on local deposit supply and through changes in banks’ risk perceptions. These banks have a smaller exposure to real estate, maintain higher equity levels, and are more likely to lend to high-income borrowers. This paper confirms, therefore, that institutional memory exists in the banking sector and that banks and communities adapt to natural disasters interactively.
Original languageEnglish
PublisherMaastricht University, Graduate School of Business and Economics
DOIs
Publication statusPublished - 14 Dec 2017

Publication series

SeriesGSBE Research Memoranda
Number033

JEL classifications

  • d53 - General Equilibrium and Disequilibrium: Financial Markets
  • d83 - "Search; Learning; Information and Knowledge; Communication; Belief"
  • g11 - "Portfolio Choice; Investment Decisions"
  • g21 - "Banks; Depository Institutions; Micro Finance Institutions; Mortgages"
  • q54 - "Climate; Natural Disasters; Global Warming"

Keywords

  • environmental economics
  • Financial Economics and Financial Manageemnt

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