Natural Disaster Impacts on U.S. Banks

Abstract

We examine how natural disasters affect bank performance during the 2000-2017 period. The results suggest bank offices in affected counties raise loan rates more than deposit rates. However, we find that community banks, not non-community banks, drive the results, and by being located in disaster-prone areas, they contribute to helping communities recover from natural disasters without any evidence of price gouging. This contributes to higher returns on assets and net interest margins for community banks. Yet, the banks' resulting higher return on assets is not large enough that their offices in disaster-prone communities contribute to economically meaningful profits. Moreover, banks increase their use of brokered deposits after natural disasters to help offset any withdrawal of deposits by individuals and firms in affected communities.