The Finance Brown Bag Seminar is held by the Institute for Finance, Banking and Insurance (WU Vienna) and the Vienna Graduate School of Finance (VGSF). It serves as a presentation platform for PhD students, faculty members, and visitors. An overview of BBS on the website of the Institute for Finance, Banking and Insurance.
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Oliver Rehbein, WU Vienna University of Economics and Business
When the Dam Almost Breaks: Disasters and Credit Risk
with Sophia Arlt (Deutsche Bundesbank, Goethe University Frankfurt), Christian Groß (Deutsche Bundesbank) and Iliriana Shala (Deutsche Bundesbank, Goethe University Frankfurt)
How does risk perception in credit markets change after observing a nearby catastrophic event? We combine detailed geospatial data on ex-ante flood risk of German firms with credit register data and show that after a major flood in 2021, loan rates decrease for high-flood risk firms that were not directly affected. This negative indirect effect is strongest for banks with a large loan portfolio exposure to the flood. Firms that were affected by earlier, but similar floods do not experience rate reductions. The decrease is also strongest in areas with low climate change belief, while high climate change belief areas experience rate increases. Overall, our evidence points to a novel near-miss effect in lending markets after natural disasters, where a close disaster „miss“ may be misinterpreted as a reduction in fundamental risk.
