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Flooded Collateral: Bank Asset Management and Lending Decisions

16 September 2025
Authors: Jan-Baptist Van Gerwen, Hans Degryse, Steven Ongena, and Alessandro Scopelliti
Presenter: Jan-Baptist Van Gerwen
Abstract:

This paper studies how banks incorporate flood risk into the valuation of assets used as collateral in corporate debt contracts and subsequent lending decisions. Using a unique dataset from a major Belgian bank, we match real estate collateral to granular flood risk maps from the Flemish government and exploit the 2021 Western Europe floods as a salience shock. We find that after the flood event, assets exposed to pluvial risk or sea-level rise risk are revalued downward. Internal bank staff account for these risks more strongly than external experts, and the bank shifts toward internal models after the event. By contrast, we find no conclusive evidence for lending decisions: interest rates increase for floating-rate loans of firms exposed to pluvial risk through their collateral assets, but the bank does not reduce exposure to these firms.

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