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Climate risk and banks’ risk-taking behavior

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  • Zhang, Lei
  • Chen, Jie
  • Jiang, Chunqiao

Abstract

This study examines how climate risks affect bank risk-taking using panel data from 259 banks from 2007 to 2023 and applying fixed effects and general method-of-moment models. Results show that both physical and transition risks significantly increase banks’ risk-taking by heightening bank vulnerability and expanding local government debt. A dual regulatory paradox also emerges: quantitative monetary policy and macroprudential regulation strengthen short-term stability but simultaneously intensify the adverse effects of climate risks on bank behavior.

Suggested Citation

  • Zhang, Lei & Chen, Jie & Jiang, Chunqiao, 2026. "Climate risk and banks’ risk-taking behavior," Finance Research Letters, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:finlet:v:87:y:2026:i:c:s154461232502166x
    DOI: 10.1016/j.frl.2025.108913
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