Natural Disasters and Economic Growth: The Role of Banking Market Structure
2021
Following a natural disaster, the rate of economic growth recovers faster in less competitive
banking markets. A 10% reduction in competition increases the rate of economic
growth by 0.3%. In less competitive markets, banks respond to a disaster by increasing
the supply of real estate credit by refinancing mortgage loans but do not lend more to
businesses or consumers. Instead, government agencies provide disaster loans to affected
businesses and households. Smaller, profitable and well-capitalized institutions
that rely more on traditional retail banking originate most mortgage credit.
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