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Climate Risks in the U.S. Banking Sector: Evidence from Operational Losses and Extreme Storms

Author

Listed:
  • Allen N. Berger
  • Filippo Curti
  • Nika Lazaryan
  • Atanas Mihov
  • Raluca A. Roman

Abstract

Using supervisory data from large U.S. bank holding companies (BHCs), we document that BHCs suffer more operational losses during episodes of extreme storms. Among different operational loss types, losses due to external fraud, BHCs’ failure to meet obligations to clients and faulty business practices, damage to physical assets, and business disruption drive this relation. Event study estimations corroborate our baseline findings. We further show that BHCs with past exposure to extreme storms reduce operational losses from future exposure to storms. Overall, our findings provide new evidence regarding U.S. banking organizations’ exposure to climate risks with implications for risk management practices and supervisory policy.

Suggested Citation

  • Allen N. Berger & Filippo Curti & Nika Lazaryan & Atanas Mihov & Raluca A. Roman, 2023. "Climate Risks in the U.S. Banking Sector: Evidence from Operational Losses and Extreme Storms," Working Papers 21-31, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:97489
    DOI: 10.21799/frbp.wp.2023.31
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    References listed on IDEAS

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    More about this item

    Keywords

    Operational Losses; Banking; Bank Holding Companies; Natural Disasters; Climate Risk; Hurricanes; Tornadoes; Severe Thunderstorms;
    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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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