Template-Type: ReDIF-Paper 1.0
Title: Flooded Through the Back Door: The Role of Capital in Local Shock Spillovers
Author-Name: Oliver Rehbein
Author-Email: Oliver.rehbein@uni-bonn.de
Author-Name: Steven Ongena
Author-Email: steven.ongena@bf.uzh.ch

Classification-JEL: G21, G29, E44, E24
Keywords: natural disaster, real eects, shock transmission, bank capital

Abstract: This paper demonstrates that low bank capital carries a negative externality
because it amplies local shock spillovers. We exploit a natural disaster that is
transmitted to rms in non-disaster areas via their banks. Firms connected to a
strongly disaster-exposed bank with lowest-quartile capitalization signicantly re-
duce total borrowing by 4.8 %, employment by 2.7% and tangible assets by 7.5%
compared to similar rms connected to a well-capitalized bank. These ndings
translate to negative regional eects on GDP and unemployment. Banks also par-
ticularly reduce their exposure to this-time-unaected but in general disaster-prone
areas following a disaster.

Note: 
Length: 62
Creation-Date: 2020-05
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp043
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2020_043v2