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After the Storm: Natural Disasters and Bank Solvency

Author

Listed:
  • Dieter Gramlich

    (Baden-Württemberg Cooperative State University, Heidenheim, Germany)

  • Thomas Walker

    (John Molson School of Business, Concordia University, Montreal, Canada)

  • Yunfei Zhao

    (College of Business and Public Management, Wenzhou-Kean University, Zhejiang Province, China)

  • Mohammad Bitar

    (Nottingham University Business School, University of Nottingham, United Kingdom)

Abstract

This study examines how natural disasters affect the solvency of banks. It explores (i) whether and how natural disasters affect bank solvency, (ii) how accounting and regulatory measures of bank solvency reflect a bank’s true affectedness, and (iii) whether the effects vary across different types of banks. Analyzing a comprehensive data set on natural catastrophes and detailed financial statements for 9,928 banks that operate in 149 countries, the main finding is that damages from disasters matter: they negatively affect capital ratios, and the severity of their impact depends on a bank’s location, capitalization, and business model. Particularly, the results show that accounting measures of solvency are more sensitive to disasters than are regulatory measures. Evidence of a bank’s sensitivity to natural disasters and the suitability of capital ratios to assess this sensitivity may both be helpful for financial institutions and regulatory authorities in designing appropriate risk mitigation strategies.

Suggested Citation

  • Dieter Gramlich & Thomas Walker & Yunfei Zhao & Mohammad Bitar, 2023. "After the Storm: Natural Disasters and Bank Solvency," International Journal of Central Banking, International Journal of Central Banking, vol. 19(2), pages 199-249, June.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:2:a:4
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    References listed on IDEAS

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    Citations

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    Cited by:

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    6. Kakuho Furukawa & Hibiki Ichiue & Noriyuki Shiraki, 2025. "How Does Climate Change Interact with the Financial System?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 43, pages 61-94, November.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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