Floods and financial stability: Scenario-based evidence from below sea level

Francesco Caloia; Kees van Ginkel; David-Jan Jansen

doi:10.1016/j.jfs.2026.101545

Floods and financial stability: Scenario-based evidence from below sea level

Francesco Caloia
, Kees van Ginkel
, David-Jan Jansen

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

We study whether floods can affect financial stability through a credit risk channel. Our focus is on The Netherlands, a country situated partly below sea level, where insurance policies exclude property damages caused by certain types of floods. Using detailed data for close to EUR 650 billion in real estate exposures, we consider possible implications of uninsurable flood damages for bank capital. For a set of 38 adverse scenarios, we estimate that flood-related property damages lead to capital declines that mostly range between 30 and 50 basis points. We highlight how starting-point loan-to-value ratios are one important indicator of possible capital impacts. Our estimates focus on property damages as the main transmission channel and are also subject to a number of assumptions, suggesting overall effects of flood events may well be larger. If climate protection gaps indeed keep widening across the globe, our analytical approach to quantifying the effects of flood events will become increasingly relevant for financial stability in other jurisdictions.

Original language	English
Article number	101545
Pages (from-to)	1-13
Number of pages	13
Journal	Journal of Financial Stability
Volume	84
DOIs	https://doi.org/10.1016/j.jfs.2026.101545
Publication status	Published - Jun 2026

Funding

With thanks to Wouter Botzen, Karin de Bruijn, Maurice Bun, Ricardo Correa, Hans Degryse, Mattia Girotti, Luc Laeven, Marco Hoogvliet, Hans de Moel, Remco van der Molen, Irene Monasterolo, Klaas Mulier, David Rijsbergen, Stephan Rikkert, Kymo Slager, Robert Vermeulen, Jon Frost, JFS associate editors, and two anonymous reviewers for constructive feedback over the course of this project. We also thank participants at an IMF/ECB workshop, a DNB seminar, online meetings of the International Banking Research Network, and the 2024 Belgian Financial Research Forum for useful comments. Van Ginkel acknowledges financial support under the Horizon Europe ACCREU project, grant agreement No. 101081358 . Any errors and omissions remain our own responsibility. Views expressed in this paper do not necessarily coincide with those of de Vrije Universiteit, Deltares, the European Commission, de Nederlandsche Bank or the Eurosystem.

Funders	Funder number
European Commission
HORIZON EUROPE Framework Programme	101081358

Keywords

floods
financial stability
scenario analysis

Access to Document

10.1016/j.jfs.2026.101545

Persistent URL (handle)

Persistent link

1 Citations
1 Working paper

Floods and financial stability: Scenario-based evidence from below sea level
Caloia, F., van Ginkel, K. & Jansen, D.-J., 29 Dec 2023, 083/IV ed., Tinbergen Institute, (TI Discussion Paper Series; vol. 23-083/IV).
Research output: Working paper / Preprint › Working paper › Professional

Open Access

Cite this

@article{b18463772b274b18aa1a1ce958ce61a7,

title = "Floods and financial stability: Scenario-based evidence from below sea level",

abstract = "We study whether floods can affect financial stability through a credit risk channel. Our focus is on The Netherlands, a country situated partly below sea level, where insurance policies exclude property damages caused by certain types of floods. Using detailed data for close to EUR 650 billion in real estate exposures, we consider possible implications of uninsurable flood damages for bank capital. For a set of 38 adverse scenarios, we estimate that flood-related property damages lead to capital declines that mostly range between 30 and 50 basis points. We highlight how starting-point loan-to-value ratios are one important indicator of possible capital impacts. Our estimates focus on property damages as the main transmission channel and are also subject to a number of assumptions, suggesting overall effects of flood events may well be larger. If climate protection gaps indeed keep widening across the globe, our analytical approach to quantifying the effects of flood events will become increasingly relevant for financial stability in other jurisdictions.",

keywords = "floods, financial stability, scenario analysis",

author = "Francesco Caloia and \{van Ginkel\}, Kees and David-Jan Jansen",

year = "2026",

month = jun,

doi = "10.1016/j.jfs.2026.101545",

language = "English",

volume = "84",

pages = "1--13",

journal = "Journal of Financial Stability",

issn = "1572-3089",

publisher = "Elsevier B.V.",

}

TY - JOUR

T1 - Floods and financial stability: Scenario-based evidence from below sea level

AU - Caloia, Francesco

AU - van Ginkel, Kees

AU - Jansen, David-Jan

PY - 2026/6

Y1 - 2026/6

N2 - We study whether floods can affect financial stability through a credit risk channel. Our focus is on The Netherlands, a country situated partly below sea level, where insurance policies exclude property damages caused by certain types of floods. Using detailed data for close to EUR 650 billion in real estate exposures, we consider possible implications of uninsurable flood damages for bank capital. For a set of 38 adverse scenarios, we estimate that flood-related property damages lead to capital declines that mostly range between 30 and 50 basis points. We highlight how starting-point loan-to-value ratios are one important indicator of possible capital impacts. Our estimates focus on property damages as the main transmission channel and are also subject to a number of assumptions, suggesting overall effects of flood events may well be larger. If climate protection gaps indeed keep widening across the globe, our analytical approach to quantifying the effects of flood events will become increasingly relevant for financial stability in other jurisdictions.

AB - We study whether floods can affect financial stability through a credit risk channel. Our focus is on The Netherlands, a country situated partly below sea level, where insurance policies exclude property damages caused by certain types of floods. Using detailed data for close to EUR 650 billion in real estate exposures, we consider possible implications of uninsurable flood damages for bank capital. For a set of 38 adverse scenarios, we estimate that flood-related property damages lead to capital declines that mostly range between 30 and 50 basis points. We highlight how starting-point loan-to-value ratios are one important indicator of possible capital impacts. Our estimates focus on property damages as the main transmission channel and are also subject to a number of assumptions, suggesting overall effects of flood events may well be larger. If climate protection gaps indeed keep widening across the globe, our analytical approach to quantifying the effects of flood events will become increasingly relevant for financial stability in other jurisdictions.

KW - floods

KW - financial stability

KW - scenario analysis

U2 - 10.1016/j.jfs.2026.101545

DO - 10.1016/j.jfs.2026.101545

M3 - Article

SN - 1572-3089

VL - 84

SP - 1

EP - 13

JO - Journal of Financial Stability

JF - Journal of Financial Stability

M1 - 101545

ER -

Floods and financial stability: Scenario-based evidence from below sea level

Abstract

Funding

Keywords

Access to Document

Persistent URL (handle)

Fingerprint

Research output

Floods and financial stability: Scenario-based evidence from below sea level

Cite this