No. 457 - Natural catastrophes and bank lending: the case of flood risk in Italy

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by Ivan Faiella and Filippo Natoli October 2018

We analyze the relationship between the risk of natural catastrophes, increasingly relevant because of climate change, and bank lending to non-financial firms in Italy. Focusing on flood risk, we merge data on the number of highly exposed business units within each municipality with those on outstanding bank loans to firms as at end-2014.

Our findings show that the risk of natural catastrophes is negatively correlated with the amount of loans granted to Italian firms, particularly to SMEs which, according to recent survey evidence, are less inclined to buy catastrophe risk insurance. Further research will explore causality from specific catastrophic events to bank lending and extend the analysis to other aspects of banking activity.

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