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This study investigates how typhoons affect bank lending in China. Our difference-in-difference estimates, based on a sample of more than 161,000 bank branches held by 327 Chinese banks from 2004 to 2019, show that on average typhoons trigger a decrease in lending that accounts for 2.8 percent of total bank assets.
This decline is driven by commercial banks, presumably due to worsening information asymmetries. 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.
