Financial fragility and natural disasters: An empirical analysis

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25 Citations (Scopus)

Abstract

Using data for more than 160 countries in the period 1997-2010, we explore the impact of large-scale natural disasters on the distance-to-default of commercial banks. The financial consequences of natural catastrophes may stress and threaten the existence of a bank by adversely affecting their solvency. After extensive testing for the sensitivity of the results, our main findings suggest that natural disasters increase the likelihood of a banks' default. More precisely, we conclude that geophysical and meteorological disasters reduce the distance-to-default the most due to their widespread damage caused. In addition, the impact of a natural disaster depends on the size and scope of the catastrophe, the rigorousness of financial regulation and supervision, and the level of financial and economic development of a particular country. (C) 2014 Elsevier B.V. All rights reserved.
Original languageEnglish
Pages (from-to)180-192
JournalJournal of Financial Stability
Volume13
DOIs
Publication statusPublished - 2014

Keywords

  • basel core principles
  • economic-growth
  • bank soundness
  • panel-data
  • risk
  • crises
  • database
  • deposit
  • models
  • sector

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