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

Brei, Michael; Mohan, Preeya; Strobl, Eric Albert (2019). The impact of natural disasters on the banking sector: Evidence from hurricane strikes in the Caribbean. The quarterly review of economics and finance, 72, pp. 232-239. Elsevier 10.1016/j.qref.2018.12.004

Text 1-s2.0-S1062976918301613-main.pdf - Published Version Restricted to registered users only Available under License Publisher holds Copyright. Download (1MB)

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.

Interest & Impact

Downloads

2 since deposited on 15 Jul 2019
0 in the past 12 months

Citations

5 Citations in Web of Science ®
6 Citations in Scopus

Search

in Google Scholar™

Services

Actions (login required)

Edit item

Actions (login required)

Edit item