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How Small Banks Deal with Large Shocks

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  • Kristle Romero Cortes

Abstract

After a natural disaster such as a hurricane, tornado, or flood, banks in the affected area experience a sharp rise in the demand for loans as property owners look to repair the damage. Recent research has focused on such events to study how small community banks adjust their typical way of doing business to respond to large shocks. The research finds that banks strategically adjust their business in three ways to meet the increased demand for capital. Two adjustments increase the funds available for lending, while one shifts lending from areas unaffected by the disaster to the affected area, a strategy that extends the negative impact of large shocks to distant areas otherwise untouched by the disaster.

Suggested Citation

  • Kristle Romero Cortes, 2017. "How Small Banks Deal with Large Shocks," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
  • Handle: RePEc:fip:fedcec:00070
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    Keywords

    Lending; Disasters; community banks;

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