Camélia Turcu

Pauline Avril (LEO – University of Orléans), Grégory Levieuge (Banque de France and LEO – University of Orléans), Camélia Turcu (LEO – University of Orléans)

 

 

A cataclysmic event might lead to a reduction in lending, due to the deterioration in agents’ creditworthiness. Nevertheless, banks are expected to support the recovery. This study investigates which effect dominates by exploring how typhoons affect the lending activities of banks in China. It relies on the exposure of more than 161,000 bank branches held by 327 Chinese banks over the period from 2004 to 2019. Our difference-in-difference estimates reveal that, on average, typhoons trigger a decrease in lending that accounts for 2.8 percent of total bank assets. This decline comes from commercial banks. On the contrary, rural banks act as shock absorbers. This may be the consequence of long-term lending relationships and banks’ better knowledge of local economic and physical risks. The absence of rural banks is even found to be detrimental to local post-typhoon growth. Last, government ownership and external political pressure mitigate the relative decline in lending by typhoon-hit commercial banks.