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Is this really the ‘most dangerous man in Germany’?IWHThe Spectator, August 23, 2026
We show that local banks provide corporate recovery lending to firms affected by adverse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.
We investigate firm outcomes after a major flood in Germany in 2013. We robustly find that firms located in the disaster regions have significantly higher turnover, lower leverage, and higher cash in the period after 2013. We provide evidence that the effects stem from firms that already experienced a similar major disaster in 2002. Overall, our results document a positive net effect on firm performance in the direct aftermath of a natural disaster.
Understanding how banks react to unexpected events has become a very important economic and social question, especially since the financial crisis (Ivashina and Scharfstein, 2010; Puri et al., 2011). Whereas previous financial crises had largely stayed in the realm of finance, or very limited areas of the economy, the financial crisis of 2007-2008 demonstrated that unexpected financial shocks can have severe implications for the real economy in general, impacting the lives of a large cross-section of the population, for example through general reductions in employment (Chodorow- Reich, 2014; Popov and Rocholl, 2017). This new realization has led to an extensive literature on how banks react to unexpected events, especially if and how they transfer such shocks to firms and households. As a result, understanding exactly how shocks are transferred not only between banks (Popov and Udell, 2012; Schnabl, 2012), but also between banks and firms has become a crucial aspect of financial research (Peek and Rosengren, 2000; Gan, 2007; Ongena et al., 2015; Acharya et al., 2018; Gropp et al., 2018; Huber, 2018). It has returned into focus the idea that a functioning connection between banks and firms constitutes a crucial part of a well-functioning economy. This thesis aims to contribute to the understanding of how this bank-firm relationship functions and what pitfalls it might entail.
I show that natural disasters transmit to firms in non-disaster areas via their banks. This spillover of non-financial shocks through the banking system is stronger for banks with less regulatory capital. Firms connected to a disaster-exposed bank with below median capital reduce their employment by 11% and their fixed assets by 20% compared to firms in the same region without such a bank during the 2013 flooding in Germany. Relationship banking and higher firm capital also mitigate the effects of such negative cross-regional spillovers.
The rapid growth exhibited by peer-to-peer finance markets raises hopes that especially young ventures might obtain better access to funding. Yet, consumer protection concerns are looming as borrowers and projects requesting finance from the crowd are inherently opaque. We suggest clear rules to enable peer-to-peer lenders and investors to more effectively screen projects. We plea for strengthening self-responsibility of the investor crowd by clearly assigning, and limiting the responsibilities of regulatory authorities and recognizing the regulatory difference between new peer-to-peer, and traditional financial markets. As a result the peer-to-peer market can develop to more effectively complement traditional sources of finance, instead of turning into a funding source for bad investment projects looking to exploit uninformed lenders and investors.
We show that local banks provide corporate recovery lending to firms affected by ad-verse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.
