Search Results
Working Paper
Last Resort Insurance: Wildfires and the Regulation of a Crashing Market
An increasing number of people are denied home insurance coverage in the private market and must instead turn to state-sponsored plans known as “Insurers of Last Resort.” This paper examines how insurers of last resort interact with the private market under increasing disaster risks. We first present a simple model of an adversely selected insurance market, highlighting that the insurer of last resort allows strict price regulation to be compatible with full insurance. We then empirically study the California non-renewal moratoriums, a regulation that forced insurers to supply insurance ...
Journal Article
Understanding the Linkages between Climate Change and Inequality in the United States
The authors conduct a review of the existing academic literature to outline possible links between climate change and inequality in the United States. First, researchers have shown that the impact of both physical and transition risks may be uneven across location, income, race, and age. This is driven by a region’s geography as well as its ability to adapt. Second, measures that individuals and governments take to adapt to climate change and to transition to lower emissions risk increasing inequality. Finally, while federal aid and insurance coverage can mitigate the direct impact of ...
Report
Do Mortgage Lenders Respond to Flood Risk?
Using unique nationwide property-level mortgage, flood risk, and flood map data, we analyze whether lenders respond to flood risk that is not captured in FEMA flood maps. We find that lenders are less willing to originate mortgages and charge higher rates for lower LTV loans that face “un-mapped” flood risk. This effect is weaker for high income applicants, as well as non-banks and small local banks. However, we find evidence that non-banks and local banks are more likely to securitize/sell mortgages to borrowers prone to flood risk. Taken together, our results are indicative that ...
Report
Resilience and Recovery: Insights from the July 2022 Eastern Kentucky Flood
Because of its topography, location, and coal mining legacy, eastern Kentucky has a long history of flooding. This report focuses on housing in the 13 counties declared federal disaster areas after the July 2022 flood.
Discussion Paper
The Welfare Costs of Superstorm Sandy
As most of the New York metropolitan region begins to get back to normal following the devastation caused by superstorm Sandy, researchers and analysts are trying to assess the total ?economic cost? of the storm. But what, exactly, is meant by economic cost? Typically, those tallying up the economic cost of a disaster think of two types of costs: loss of capital (property damage and destruction) and loss of economic activity (caused by disruptions). But there is another important type of economic loss that often is not estimated or discussed in policymaking decisions: loss of welfare or ...
Discussion Paper
The Impact of Natural Disasters on the Corporate Loan Market
Natural disasters are usually associated with an increase in the demand for credit by both households and companies in the affected regions. However, if capacity constraints preclude banks from meeting the local increase in demand, the banks may reduce lending elsewhere, thus propagating the shock to unaffected areas. In this post, we analyze the corporate loan market and find that banks, particularly those with lower capital, reduce credit provisioning to distant regions unaffected by natural disasters. We also find that shadow banks only partially offset the reduction in bank credit, so ...
Discussion Paper
How Will We Pay for Superstorm Sandy?
While the full extent of the harm caused by superstorm Sandy is still unknown, it?s clear that the region sustained significant damage and disruption, particularly along the coastal areas of New York, New Jersey, and Connecticut. As we describe earlier in this series, the economic costs associated with natural disasters are generally thought to arise from the damage and destruction of physical assets and the loss of economic activity. These costs can be substantial, running into the tens of billions, and impose significant stress on the affected communities. In this post, we assess who will ...
Discussion Paper
New Dataset Maps Losses from Natural Disasters to the County Level
The Federal Reserve’s mission and regional structure ask that it always work to better understand local and regional economic activity. This requires gauging the economic impact of localized events, including natural disasters. Despite the economic significance of natural disasters—flowing often from their human toll—there are currently no publicly available data on the damages they cause in the United States at the county level.
Working Paper
Rebuilding after Disaster Strikes: How Local Lenders Aid in the Recovery
Using detailed employment data on firm age and size, I show that the presence of local finance improves job retention and creation at young and small firms. I use natural disasters and regulatory guidance to disentangle the effects of credit supply and demand. I find that an additional standard deviation of local finance offsets the negative effects of the disaster and can lead to 1 to 2% higher employment growth at either young or small firms. Banks increase lending but are not borrowing against future lending, nor do they experience changes in default rates. These findings suggest that ...
Working Paper
Bank Competition and Strategic Adaptation to Climate Change
How does competition affect banks' adaptation to emergent risks for which there is limited supervisory oversight? The analysis matches detailed supervisory data on home equity lines of credit with high resolution flood projections to identify climate risks. Following Hurricane Harvey, banks updated their internal risk models to better reflect flood risk projections, even in areas unaffected by the disaster. These updates are only detected in banks with exposures to the disaster, indicating heterogeneous bank learning. We use this heterogeneity to identify how bank adaptation is affected by ...