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The Impact of Climate Resilience on Banks’ Financial Stability

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  • Esengül Özdemir Altınışık
  • Melek Yıldız

Abstract

The increasing volume of global trade driven by production and consumption following the Industrial Revolution has negatively impacted the socioeconomic environment. In response to climate risks, the globalized industry is seeking sustainable and green financial methods. For sustainable financial stability, climate change risks must be considered, and financial systems must limit their regulations within legal frameworks. In this context, the primary objective of this study is to examine the impact of countries' resilience and adaptation capacity to the adverse impacts of climate change on the stability of the banking sector. In the model constructed for this purpose, the bank Z-score is used as the dependent variable representing banks' financial stability, while the climate resilience index (CRI), carbon emissions (CO2), economic growth (GDPG), economic freedom index (EFI), and political stability and absence of violence/terrorism (PS) are used as independent variables. The AMG test, a modern estimator that takes into account heterogeneity and cross-sectional dependence, was applied to a large panel of 96 countries. The analysis findings indicate that countries' resilience and adaptation capacity to climate change positively impact the stability of the banking sector. Economic growth has also been found to have an improving effect on the financial stability of the banking sector.

Suggested Citation

  • Esengül Özdemir Altınışık & Melek Yıldız, 2025. "The Impact of Climate Resilience on Banks’ Financial Stability," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 10(SI), pages 360-382.
    • Handle: RePEc:ahs:journl:v:10:y:2025:i:si:p:360-382
    DOI: 10.30784/epfad.1813728
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    References listed on IDEAS

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    1. Agbloyor, Elikplimi Kolma & Dwumfour, Richard Adjei & Pan, Lei & Yawson, Alfred, 2021. "Carbon emissions and banking stability: Global evidence," MPRA Paper 111092, University Library of Munich, Germany.
    2. Rafael E. De Hoyos & Vasilis Sarafidis, 2006. "Testing for cross-sectional dependence in panel-data models," Stata Journal, StataCorp LLC, vol. 6(4), pages 482-496, December.
    3. Fujin Zhou & Thijs Endendijk & W.J. Wouter Botzen, 2023. "A Review of the Financial Sector Impacts of Risks Associated with Climate Change," Annual Review of Resource Economics, Annual Reviews, vol. 15(1), pages 233-256, October.
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    Keywords

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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