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Working Paper

Rebuilding after Disaster Strikes: How Local Lenders Aid in the Recovery

Using detailed employment data on firm age and size, I show that the presence of local finance improves job retention and creation at young and small firms. I use natural disasters and regulatory guidance to disentangle the effects of credit supply and demand. I find that an additional standard deviation of local finance offsets the negative effects of the disaster and can lead to 1 to 2% higher employment growth at either young or small firms. Banks increase lending but are not borrowing against future lending, nor do they experience changes in default rates. These findings suggest that local lenders play an important and necessary role in job creation in the economy.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Cortés, Kristle Romero. 2014. “Rebuilding after Disaster Strikes: How Local Lenders Aid in the Recovery.” Federal Reserve Bank of Cleveland, Working Paper No. 14-28. https://doi.org/10.26509/frbc-wp-201428