“There is No Planet B", but for Banks “There are Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending

Benincasa, Emanuela; Kabaş, Gazi; Ongena, Steven

doi:10.2139/ssrn.4075737

Cited by 11 publications

(8 citation statements)

References 35 publications

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“…Any quantitative assessment of the materiality of various climate risks for a bank's loan portfolio requires a comparison of the horizon over which these risks are expected to materialize and the average maturity of banks' loans. Recent research has documented that the average maturity of loans of the US banks at origination is between 3 and 5 years (Blickle et al 2020, Chodorow-Reich et al 2022, and the average maturity in the case of European banks is closer to 5 years (Berg et al 2017). 17 Physical climate risk realizations have the potential to increase the credit risk exposure of banks.…”

Section: Figurementioning

confidence: 99%

Climate Stress Testing

Acharya,

Berner,

Engle

et al. 2023

Annu. Rev. Financ. Econ.

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We explore the design of climate stress tests to assess and manage macroprudential risks from climate change in the financial sector. We review the climate stress scenarios currently employed by regulators, highlighting the need to ( a) consider many transition risks as dynamic policy choices, ( b) better understand and incorporate feedback loops between climate change and the economy, and ( c) further explore compound risk scenarios in which climate risks co-occur with other risks. We discuss how the process of mapping climate stress scenarios into financial firm outcomes can incorporate existing evidence on the effects of various climate-related risks on credit and market outcomes. We argue that more research is required to ( a) identify channels through which plausible scenarios can lead to meaningful short-run impact on credit risks given typical bank loan maturities, ( b) incorporate bank-lending responses to climate risks, ( c) assess the adequacy of climate risk pricing in financial markets, and ( d) better understand how market participants form climate risk expectations and how that affects financial stability. Finally, we discuss the advantages and disadvantages of using market-based climate stress tests that can be conducted with publicly available data to complement existing stress-testing frameworks. Expected final online publication date for the Annual Review of Financial Economics, Volume 15 is November 2023. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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Section: Figurementioning

confidence: 99%

Climate Stress Testing

Acharya,

Berner,

Engle

et al. 2023

Annu. Rev. Financ. Econ.

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“…Data on GDP per capita and national institutional variables are from the World Bank's World Development Indicators. In addition, we obtain data on distances activity in response to national carbon mitigating requirements, has arisen in the areas of bank lending (Benincasa (2021), Benincasa et al (2022), Laeven and Popov (2023)) and of firm production (Bartram et al (2022), Ben-David et al (2021)).…”

Section: Datamentioning

confidence: 99%

International Trade in Brown Shares and Economic Development

Benink,

Huizinga,

Raes

et al. 2024

SSRN Journal

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“…The underlying idea is that more polluting firms are more likely to be targeted by climate regulation, which may entail costs and losses for banks triggered by the mechanisms described in the previous section. Another common proxy for CTR is the stringency of climate policies in a given country (e.g., Benincasa et al 2021; Delis et al 2021). If climate change mitigation is a priority in the national political agenda, it is more likely that companies will have to face rules and fines, or to sustain unplanned investments in greener technology to adapt to the new framework.…”

Section: Institutional Frameworkmentioning

confidence: 99%

Climate transition risk and bank lending

Bruno,

Lombini

2023

J of Financial Research

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We investigate whether and how banks in the global syndicated loan market adjusted the pricing and supply of credit to account for higher climate transition risk (CTR) in the years following the 2015 Paris Agreement. We measure CTR by considering the pollution levels of borrowers and the engagement of countries where borrowers are headquartered in addressing climate change issues. The evidence is mixed and points to non‐linear relations between lending variables and CO2 emissions. Policy events such as the Paris Agreement and government environmental awareness are significant climate risk drivers that, when combined, may amplify banks’ perception of CTR.This article is protected by copyright. All rights reserved.

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“There is No Planet B", but for Banks “There are Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending

Cited by 11 publications

References 35 publications

Climate Stress Testing

Climate Stress Testing

International Trade in Brown Shares and Economic Development

Climate transition risk and bank lending

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