美联储保险、天气和金融稳定
AI智能总结Insurance, Weather, and Financial Stability
Abstract
In this paper, we introduce a model to study the interaction between insurance and banking. Focusing on the Federal Crop Insurance Act of 1980, which significantly expanded and restructured the federal crop insurance program, we explore the relationship between adverse weather shocks and bank lending. After 1980, banks increased their lending to the agricultural sector in counties with higher insurance coverage, even during adverse weather events. Despite taking on riskier loans, banks were adequately compensated by insurance, ensuring that their overall risk did not increase significantly.
Introduction
Global warming poses significant risks to financial institutions through "physical risks" (damage from acute or long-term weather changes) and "transition risks" (policy, technology, or taste changes due to climate change). Insurance aims to mitigate these risks by pooling and reallocating them to institutions best equipped to manage them. However, as climate change increases correlations, insurance becomes less effective, potentially making financial institutions more fragile.
Methodology and Findings
We analyze the impact of insurance on bank lending by examining the Federal Crop Insurance Act of 1980. Two types of adverse weather shocks—over-exposure to heat and acute weather events—are used to isolate the effect of expanding crop insurance on bank lending. Our findings show that banks increased their exposure to the agricultural sector by increasing farm loans and loans collateralized by farm real estate in counties with higher insurance coverage, even during adverse weather events. Although banks took on riskier loans, their returns increased, and they experienced higher provisional loan losses and charge-offs, indicating that insurance adequately compensated them.
Theoretical Model
Our theoretical model is a simple, partial equilibrium approach. Empirically, we find that banks' risk appetite did not increase meaningfully despite taking on riskier loans due to adequate compensation from insurance.
Literature Review
Previous studies have examined how various risk management arrangements affect bank lending. For instance, Blickle and Santos (2022) found that banks reduce mortgage lending in response to mandatory flood insurance, driven by the insurance mandate rather than underlying flood risk. Similarly, Sastri (2021) and others found that banks respond similarly to other insurance programs, such as securitization and CDS.
Conclusion
Our findings align with studies showing an increase in lending accompanied by riskier lending following the rise in securitization or the development of CDS and secondary loan markets. However, our paper is closer to studies of the Federal Flood Insurance Program, offering more comprehensive protection against a wide range of perils affecting farmers and banks. While insurance generally stabilizes banks, there are scenarios where insurance availability could become destabilizing if not managed properly.
Note: The authors acknowledge valuable suggestions from Jonathan Coppess, Andrew Hultgren, and Stefan Zeume, with Evan Perry providing outstanding research assistance. The views expressed are those of the authors and do not necessarily reflect the views of the Board of Governors, the Federal Reserve Bank of New York, or the Federal Reserve System.
