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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.

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  • 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
    DOI: 10.26509/frbc-wp-201412
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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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    This paper has been announced in the following NEP Reports:

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