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Weathering the storm: How climate risks shape bank credit risk in European banks

Author

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  • Bellinvia, Adriano
  • Venturelli, Valeria
  • Brighi, Paola
  • Algeri, Carmelo

Abstract

This paper investigates the impact of climate risk on banks' credit risk. Using a sample of 102 banks across 21 countries in the European Economic Area (EEA) from Q3 2019 to Q2 2023, we develop a novel approach to quantifying climate risk based on banks' loan exposures to industries and countries. Our findings indicate that climate transition risk (CTR), climate physical risk (CPR), and total climate risk (CR) significantly increase banks' credit risk. These results hold across alternative credit risk measures, offering valuable insights for financial institutions, policymakers and regulators.

Suggested Citation

  • Bellinvia, Adriano & Venturelli, Valeria & Brighi, Paola & Algeri, Carmelo, 2025. "Weathering the storm: How climate risks shape bank credit risk in European banks," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007706
    DOI: 10.1016/j.frl.2025.107511
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    More about this item

    Keywords

    Climate transition risk; Climate physical risk; Climate risk; Credit risk; European banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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