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How Bad Are Weather Disasters for Banks?
Not very. We find even the most destructive weather disasters over the last quarter century had only modest effects on U.S. banks’ performance. This stability seems endogenous rather than a mere reflection of federal disaster aid, as disasters tend to increase loan demand which helps offset losses and boosts profits. Local banks avoid mortgage lending where floods are more common than official flood maps would predict, suggesting local knowledge may also mitigate disaster impacts. Our findings inform ongoing assessments of the physical risks to banks from climate change.