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Article
Publication date: 4 January 2022

Thomas Walker, Yixin Xu, Dieter Gramlich and Yunfei Zhao

This paper explores the effect of natural disasters on the profitability and solvency of US banks.

Abstract

Purpose

This paper explores the effect of natural disasters on the profitability and solvency of US banks.

Design/methodology/approach

Employing a sample of 187 large-scale natural disasters that occurred in the United States between 2000 and 2014 and a sample of 2,891 banks, we examine whether and how disaster-related damages affect various measures of bank profitability and bank solvency. We differentiate between different types of banks (with local, regional and national operations) based on a breakdown of their state-level deposits and explore the reaction of these banks to damages weighted by the GDP of the states they operate in.

Findings

We find that natural disasters have a pronounced effect on the net-income-to-assets and the net-income-to-equity ratio of banks, as well as the banks' impaired loans and return on average assets. We also observe significant effects on the equity ratio and the tier-1 capital ratio (two solvency measures). Interestingly, the latter are positive for regional banks which appear to benefit from increased customer deposits related to safekeeping, government payments for post-disaster recovery, insurance payouts and decreased withdrawals, while they are significantly negative for banks that operate locally or nationally.

Originality/value

We contribute to the literature by offering various new insights regarding the effects natural disasters have on financial institutions. With climate change-driven natural disasters widely expected to increase both in terms of frequency and severity, their economic fallout is likely to impose an increasing burden on financial institutions. Large, nationally operating banks tend to be well diversified both geographically and in terms of their product offerings. Small, locally operating banks, however, are increasingly at risk – particularly if they operate in disaster-prone areas. Current banking regulations generally do not factor natural disaster risks into their capital requirements. To avoid the next big financial crisis, regulators may want to adjust their reserve requirements by taking this growing risk exposure into consideration.

Details

International Journal of Managerial Finance, vol. 19 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 16 August 2011

Dieter Gramlich and Mikhail V. Oet

Lessons from the most recent financial crisis show specific vulnerabilities of financial markets due to weaknesses in the structure of the financial system (structural…

2090

Abstract

Purpose

Lessons from the most recent financial crisis show specific vulnerabilities of financial markets due to weaknesses in the structure of the financial system (structural fragility). As the literature points out, the impact of systemic risk can be closely related to issues of concentration (“too big to fail”) and dependency (“too connected to fail”). However, different structural variables are emphasized in various ways, and most authors analyze each variable separately. This raises the questions of how structural fragility, as a cause of systemic distress, can be assessed more comprehensively and consistently, and what the implications are for modeling it within an integrated systemic risk framework. This paper seeks to address these issues.

Design/methodology/approach

On the basis of theoretical considerations and in the light of current transformations in financial markets, this paper explores elements of structural fragility and the requirements for modeling them.

Findings

The paper suggests an extended approach for conceptualizing structural fragility, evaluates directions for quantifying structural issues in early warning systems (EWSs) for systemic crises, and lays a theoretical groundwork for further empirical studies.

Originality/value

The need for supervisory actions to prevent crises is urgent, as is the need for integrating structural aspects into EWSs for systemic financial crises. Since a significant aspect of a financial firm's risk comes from outside the firm, individual institutions should understand and monitor the structural aspects of the various risk networks they are in.

Details

The Journal of Risk Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

Book part
Publication date: 15 June 2020

Thomas Walker, Dieter Gramlich and Adele Dumont-Bergeron

In 2017, global plastic production reached 348 million tonnes. Despite growing concerns about the environmental challenges associated with both plastic production and…

Abstract

In 2017, global plastic production reached 348 million tonnes. Despite growing concerns about the environmental challenges associated with both plastic production and plastic waste, recent estimates suggest that plastic production and subsequent waste is expected to double by the year 2035 (European Commission, 2018). To help reduce the amount of plastic waste that litters the oceans and damages the environment, the European Union has recently commissioned a study about the feasibility of levying a tax on plastic products (New Economic Foundation for the Rethink Plastic Alliance, 2018). However, very few academic articles currently exist that critically examine the arguments for or against a plastic tax and thereby enlighten government and regulators on the subject. This chapter investigates whether plastic taxes can be used as an economic disincentive for plastic products and explores its advantages and disadvantages within a circular economy. It explores whether a plastic tax is the right economic instrument to limit the use of plastics, generate design and technical innovations for bio-based materials and degradable/recyclable plastics, create other economic incentives to optimize the value of plastic and its waste collection, and increase public awareness and responsibility. We find that a plastic tax may be a suitable solution as it is likely to influence the design, production, consumption, and waste sectors if designed properly. Yet, the tax should be carefully implemented and combined with other instruments to obtain the desired outcomes and reduce the occurrence of unfavorable side effects.

Content available
Book part
Publication date: 15 June 2020

Abstract

Details

Sustainability
Type: Book
ISBN: 978-1-83867-374-1

Abstract

Details

Finance and Economy for Society: Integrating Sustainability
Type: Book
ISBN: 978-1-78635-509-6

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