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Tracing Out Capital Flows: How Financially Integrated Banks Respond to Natural Disasters

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  • Kristle Romero Cortes
  • Philip E. Strahan

Abstract

Multi-market banks reallocate capital when local credit demand increases after natural disasters. Following such events, credit in unaffected but connected markets declines by about 50 cents per dollar of additional lending in shocked areas, but most of the decline comes from loans in areas where banks do not own branches. Moreover, banks increase sales of more-liquid loans in order to lessen the impact of the demand shock on credit supply. Larger, multi-market banks appear better able than smaller ones to shield credit supplied to their core markets (those with branches) by aggressively cutting back lending outside those markets.

Suggested Citation

  • Kristle Romero Cortes & Philip E. Strahan, 2014. "Tracing Out Capital Flows: How Financially Integrated Banks Respond to Natural Disasters," Working Papers (Old Series) 1412, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1412
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    References listed on IDEAS

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    Cited by:

    1. Noth, Felix & Schüwer, Ulrich, 2017. "Natural disasters and bank stability: Evidence from the U.S. financial system," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168263, Verein für Socialpolitik / German Economic Association.
    2. M. Ali Choudhary & Anil K. Jain, 2017. "Finance and Inequality : The Distributional Impacts of Bank Credit Rationing," International Finance Discussion Papers 1211, Board of Governors of the Federal Reserve System (U.S.).
    3. Schüwer, Ulrich & Lambert, Claudia & Noth, Felix, 2017. "How do banks react to catastrophic events? Evidence from Hurricane Katrina," SAFE Working Paper Series 94, Leibniz Institute for Financial Research SAFE.
    4. Dimas Mateus Fazio & Thiago Christiano Silva, 2020. "Housing Collateral Reform and Economic Reallocation," Working Papers Series 522, Central Bank of Brazil, Research Department.
    5. Noth, Felix & Schüwer, Ulrich, 2018. "Natural disasters and bank stability: Evidence from the U.S. financial system," SAFE Working Paper Series 167, Leibniz Institute for Financial Research SAFE.
    6. Schüwer, Ulrich & Gropp, Reint E. & Noth, Felix, 2016. "What drives banks' geographic expansion? The role of locally non-diversifiable risk," VfS Annual Conference 2016 (Augsburg): Demographic Change 145885, Verein für Socialpolitik / German Economic Association.
    7. Smolyansky, Michael, 2019. "Policy externalities and banking integration," Journal of Financial Economics, Elsevier, vol. 132(3), pages 118-139.
    8. Petkov, Ivan, 2015. "Small Business Lending and the Bank-Branch Network," MPRA Paper 85762, University Library of Munich, Germany, revised 13 Oct 2017.
    9. Martin R. Goetz & Juan Carlos Gozzi, 2020. "Financial Integration and the Co-Movement of Economic Activity: Evidence from U.S. States," International Finance Discussion Papers 1305, Board of Governors of the Federal Reserve System (U.S.).
    10. Noth, Felix & Rehbein, Oliver, 2017. "Badly hurt? Natural disasters and direct firm effects," IWH Discussion Papers 25/2017, Halle Institute for Economic Research (IWH).
    11. Neville Francis & Laura E. Jackson & Michael T. Owyang, 2014. "How Has Empirical Monetary Policy Analysis Changed After the Financial Crisis?," Working Papers 2014-19, Federal Reserve Bank of St. Louis.
    12. Ross Levine & Chen Lin & Wensi Xie, 2016. "Geographic Diversification and Banks’ Funding Costs," NBER Working Papers 22544, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Financial Integration; Branch Banking; Securitization;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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