Caloia, F., van Ginkel, K. and Jansen, D. (2026). Floods and financial stability: Scenario-based evidence from below sea level Journal of Financial Stability, 84:1--13.

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.