RWP 25-16, November 2025; updated August 2026
We use confidential loan-level regulatory data to show that lending dynamics affect employment responses to natural disasters at both the local and national level. Following a disaster, bank credit contracts as perceived default risk increases. Lending volume and terms tighten more for financially constrained firms, and counties with more ex-ante constrained firms experience worse employment outcomes. Using a novel measure of firms' indirect exposure to disasters through undrawn bank credit lines, we show that disasters propagate through the banking system. Disasters tighten credit access in unaffected areas, even when controlling for firm-level credit demand, and reduce local employment growth.
JEL Classifications: G11, G12, G21
Article Citation
Howes, Cooper, Johannes Matschke, and Jordan Pandolfo. 2025. “Bank Lending Networks and Employment Dynamics following Natural Disasters.” Federal Reserve Bank of Kansas City, Research Working Paper no. 25-16, November. Available at External Linkhttps://doi.org/10.18651/RWP2025-16
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
Authors
Johannes Matschke
Senior Economist
