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Temperature shocks and bank systemic risk: Evidence from China

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  • Song, Xiaoni
  • Fang, Tong

Abstract

The relationship between climate change, a new source of financial risk, and the banking system is important for financial risk management and regulation. In this paper, we investigate the impact of temperature shocks on the systemic risk of Chinese listed banks, which is measured by a new nonlinear tail-event driven network (TENET) conditional value-at-risk (CoVaR) under g-expectation. We find that higher temperatures significantly increase the bank systemic risk, and the impact of temperature shocks is significantly larger during colder periods. The temperature shock can be regarded as a signal of bank systemic risk, which is necessary to maintain financial stability.

Suggested Citation

  • Song, Xiaoni & Fang, Tong, 2023. "Temperature shocks and bank systemic risk: Evidence from China," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006249
    DOI: 10.1016/j.frl.2022.103447
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    Cited by:

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    3. Pacelli, Vincenzo & Foglia, Matteo & Mariano, Dayana, 2025. "The link between climate and systemic risk: A bibliometric and systematic literature review," Research in International Business and Finance, Elsevier, vol. 79(C).
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    5. Zhang, Cheng & Li, Yana & Liang, Shuo, 2025. "Climate change attention and systemic financial risk: A TENET analysis," Finance Research Letters, Elsevier, vol. 72(C).
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    7. Lingke Wu & Dehong Liu & Tiantian Lin, 2023. "The Impact of Climate Change on Financial Stability," Sustainability, MDPI, vol. 15(15), pages 1-18, July.
    8. Xiaoming Zhang & Luping He & Chien‐Chiang Lee, 2026. "Climate Risk and Risk‐Taking of Rural Financial Institutions in China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 31(2), pages 1957-1978, April.
    9. Wu, Xin & Bai, Xiao & Qi, Hanying & Lu, Lanxin & Yang, Mingyuan & Taghizadeh-Hesary, Farhad, 2023. "The impact of climate change on banking systemic risk," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 419-437.
    10. Wang, Daoping & Wang, Yichun & Liu, Yangjingzhuo, 2024. "Temperature variability, natural disasters and bank systemic risk: Evidence from Chinese city commercial banks," Economics Letters, Elsevier, vol. 242(C).
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