Flood risk and financial stability
There is the possibility to overlap the thesis period with the internship period. While not the same topic, this thesis should help the student to find an internship in the finance industry. Some companies and banks ask for 3 to 6 months of internship.
Real estate properties are fundamental assets for securing credit among individuals and companies alike. For example, when individuals buy homes, the property itself often serves as collateral, securing the loan and ensuring repayment. However, the increasing exposure of these assets to flood risk presents emerging challenges for both lenders and the financial system at large.
Current research projects that by 2100, a significant portion of housing bank loans will face increased flood risk, with some countries expecting up to 1.9% of housing loans to be directly exposed to flood hazards and as much as 6% to be indirectly exposed. Alarmingly, studies indicate limited evidence that banks actively manage these growing flood risk exposures. Properties at high risk for flooding are as likely to receive housing loans as those at lower risk, highlighting an important mismanaged risk that can affect the entire financial system.
This topic proposes to explore the links between flood risk exposure and financial stability, with a focus on asset-level risk exposure and financial risk metrics. By leveraging geospatial analysis, this study will investigate how flood patterns vary across regions and examine why some countries experience heightened financial vulnerability in response to flood events while others remain resilient. The objective is to identify key factors and propose mitigation and adaptation strategies that can enhance both disaster preparedness and financial resilience.
This thesis aims to achieve three key objectives. First, it will explore the connections between disaster risks and the financial system, providing a strong framework for understanding and assessing credit risks related to natural hazards, such as floods. Second, it will examine how hazard exposure impacts financial stability and how institutions can adapt to these risks. Finally, the study will equip the student with specialized skills at the intersection of finance and disaster risk, preparing them for internships and career opportunities in the growing field of climate and disaster finance, particularly in commercial and development banks.
It is expected that the student will utilize financial databases and flood assessment tools to conduct a rigorous analysis of flood risk impacts on financial stability. This analysis will involve applying panel regressions to evaluate the relationship between flood exposure and credit risk over time, as well as performing scenario analyses to forecast potential future risks under different climate and economic scenarios. Spatio-temporal models might be employed for further analyses.
- Pöschl, Johannes. Do banks manage their flood risk exposures? Evidence from the Danish credit register. No. 15. Economic Memo, 2022.
- Caloia, Francesco G., Kees CH van Ginkel, and David-Jan Jansen. Floods and financial stability: Scenario-based evidence from below sea level. No. TI 2023-083/IV. Tinbergen Institute Discussion Paper, 2023.
- European Systemic Risk Board Advisory Scientific Committee. "Climate-related risk and financial stability." (2021).
- Barbaglia, Luca, Serena Fatica, and Caterina Rho. Flooded credit markets: physical climate risk and small business lending. No. 2023/14. JRC Working Papers in Economics and Finance, 2023.
- https://cepr.org/voxeu/columns/flood-risk-and-credit-smes