Flooded Through the Back Door: The Role of Bank Capital in Local Shock Spillovers
Peer reviewed, Journal article
Published version
Permanent lenke
https://hdl.handle.net/11250/3047184Utgivelsesdato
2022Metadata
Vis full innførselSamlinger
- NTNU Handelshøyskolen [1634]
- Publikasjoner fra CRIStin - NTNU [38294]
Originalversjon
10.1017/S0022109022000321Sammendrag
This article demonstrates that low bank capital carries a negative externality because it amplifies local shock spillovers. We exploit a natural disaster that is transmitted to firms in nondisaster areas via their banks. Firms connected to a strongly disaster-exposed bank with lowest-quartile capitalization significantly reduce their total borrowing by 6.6% and tangible assets by 6.9% compared to similar firms connected to a well-capitalized bank. These findings translate to negative regional effects on GDP and unemployment. Additionally, following a disaster event, banks reduce their exposure to currently unaffected but generally disaster-prone areas.