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Climate Change-Related Regulatory Risks and Bank Lending

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  • Mueller, Isabella
  • Sfrappini, Eleonora

Abstract

We identify the effect of climate change-related regulatory risks on credit real-location. Our evidence suggests that effects depend borrower's region. Following an increase in salience of regulatory risks, banks reallocate credit to US frms that could be negatively impacted by regulatory interventions. Conversely, in Europe, banks lend more to firms that could benefit from environmental regulation. The effect is moderated by banks' own loan portfolio composition. Banks with a portfolio tilted towards firms that could be negatively a affected by environmental policies increasingly support these firms. Overall, our results indicate that financial implications of regulation associated with climate change appear to be the main drivers of banks' behavior. JEL Classification: G21, Q51, Q58

Suggested Citation

  • Mueller, Isabella & Sfrappini, Eleonora, 2022. "Climate Change-Related Regulatory Risks and Bank Lending," Working Paper Series 2670, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20222670
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    References listed on IDEAS

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    Cited by:

    1. Aslan, Caglayan & Bulut, Erdem & Cepni, Oguzhan & Yilmaz, Muhammed Hasan, 2022. "Does climate change affect bank lending behavior?," Economics Letters, Elsevier, vol. 220(C).
    2. Zacharias Sautner & Laurence Van Lent & Grigory Vilkov & Ruishen Zhang, 2023. "Firm‐Level Climate Change Exposure," Journal of Finance, American Finance Association, vol. 78(3), pages 1449-1498, June.
    3. Müller, Isabella & Nguyen, Huyen & Nguyen, Trang, 2024. "Carbon transition risk and corporate loan securitization," IWH Discussion Papers 22/2022, Halle Institute for Economic Research (IWH), revised 2024.

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    More about this item

    Keywords

    climate change; climate risk; credit reallocation; Paris Agreement;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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