Weathering the Storm: Typhoon Strikes and Bank Operational Performance

ABSTRACT This paper investigates the impact of typhoon disasters on the operational performance of regional commercial banks in China. To better quantify disaster severity, we construct a novel, ex ante typhoon damage index by combining detailed typhoon trajectory data with a parametric wind‐field model and a potential damage function. Applying this measure to a panel of 477 banks from 2014 to 2023, we find that typhoon strikes cause large and persistent declines in the deposit and loan ratios of coastal banks, whereas inland banks primarily experience deposit declines. In response to the resulting liquidity pressures, affected banks increase their reliance on wholesale funding. A heterogeneity analysis further reveals that rural, small‐sized, and low‐capital banks are disproportionately vulnerable. We trace these impacts to the real economy, finding that they are transmitted through significant disruptions to the sales, productivity, and supply chain resilience of firm borrowers. These findings underline the critical need for targeted climate risk management to strengthen the financial system's resilience against climate shocks.