Your local bank manager knows your neighborhood is going to flood before the government does.
April 17, 2026
Original Paper
Banks' Local Knowledge and the Pricing of Natural Catastrophe Risk
SSRN · 6464321
The Takeaway
We rely on official FEMA maps and risk metrics to tell us which areas are flood-prone. But this study found that local banks are already charging higher interest rates to firms in those areas long before a flood even happens. Bank managers are using 'hidden' local intuition and knowledge that isn't captured in any official data. They can sense environmental risk through their daily interactions and local observations. It means the 'smart money' is already pricing in climate change through a kind of neighborhood gossip that the experts haven't even written down yet.
From the abstract
We investigate whether banks price natural catastrophe risk using local knowledge beyond standard risk metrics. Combining granular loan-level data from AnaCredit with satellite-based measures of ex-post flood impact at the firm-level, we find that firms more severely affected by flooding are charged higher interest rates on loans originated prior to the flood event. This result holds even after controlling for the standard indicators used in loan pricing, for several physical characteristics of