(Revised August 11, 2026)

Bank credit is a critical source of funding following a natural disaster. We test whether there are differences in post-disaster credit allocation and regional redevelopment based on the type of existing banking institutions at the time of a natural disaster. We instrument for the composition of local and national banking institutions using bank deregulation. We find less new credit and slower economic recovery in regions with a higher concentration of local banking. The supply of credit and the impact of local banks are overestimated when we fail to account for the endogenous development of banking institutions.