Borrowers under water! Rare disasters, regional banks, and recovery lending

By M. Koetter, Felix Noth, Oliver Rehbein. 2020

138 citations recorded by the source corpus.

We show that local banks provide corporate recovery lending to firms affected by adverse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/4c2b48794d7fa7f9fca7e79bf24554cb9a3bb9a0

Citations in the corpus

• Bank liquidity provision across the firm size distribution (2020, unknown): “Li et al. (2020) conjecture that these drawdowns reflected large firms drawing on credit lines as a substitute for the bond market disruptions in March (Haddad et al.”