How Does Bank Lending React to a Catastrophic Weather Event? Evidence from the Indian Ocean Tsunami

We exploit the 2004 Indian Ocean Tsunami as a natural experiment to investigate how aggregate bank lending changes in response to a large and unexpected shock. Using a data set comprising aggregate bank loans at provincial level, we assess the impact of the Indian Ocean Tsunami of 2004 on aggregate provincial lending in Thailand. The results of a Difference-in-Differences investigation suggest that aggregate lending declines in provinces affected by the Tsunami compared to unaffected counterparts. The overall effects of the tsunami on bank lending appear to be long lasting. Further analysis reveals that the overall change in aggregate lending is driven by a decline in lending in the most severely affected provinces.