High water, no marks? Biased lending after extreme weather

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 20 March 2020

Staff Working Paper No. 856

By Nicola Garbarino and Benjamin Guin

Policymakers have put forward proposals to ensure that banks do not underestimate long-term risks from climate change. To examine how lenders account for extreme weather, we compare matched repeat mortgage and property transactions around a severe flood event in England in 2013–14. First, lender valuations do not ‘mark-to-market’ against local price declines. As a result valuations are biased upwards. Second, lenders do not offset this valuation bias by adjusting interest rates or loan amounts. Third, borrowers with low credit risk self-select into high flood risk areas. Overall, these results suggest that lenders do not track closely the impact of extreme weather ex-post, and that public flood insurance programs may subsidise high income households.

PDFHigh water, no marks? Biased lending after extreme weatherPDF

This is an online appendix to Staff Working Paper No. 856.

PDFAppendix to High water, no marks? Biased lending after extreme weatherPDF

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