IDEAS home Printed from https://ideas.repec.org/a/eee/finsta/v69y2023ics1572308923000906.html
   My bibliography  Save this article

Climate risks and financial stability: Evidence from the European financial system

Author

Listed:
  • Chabot, Miia
  • Bertrand, Jean-Louis

Abstract

Climate-related risks have become a major concern for financial regulators and can pose a significant threat to financial stability. In this paper, we first propose a theoretical framework for the transmission of climate risks to financial institutions and the financial system. We then estimate the influence of physical and transition risks on the European financial system through bank-level and system-wide measures of financial stability. We find that Scope 3 greenhouse gas emissions, chronic and acute climate risks negatively affect financial stability at both the financial institution and system levels. Temperature anomalies, heat waves, wildfires and droughts are among the most significant risks. As Europe warms twice as fast as the rest of the world, our theoretical and empirical results urge regulators to mandatorily require the assessment and disclosure of corporate climate risks to allow banks to adjust their prudential capital requirements.

Suggested Citation

  • Chabot, Miia & Bertrand, Jean-Louis, 2023. "Climate risks and financial stability: Evidence from the European financial system," Journal of Financial Stability, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:finsta:v:69:y:2023:i:c:s1572308923000906
    DOI: 10.1016/j.jfs.2023.101190
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1572308923000906
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfs.2023.101190?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Financial stability; Physical risks; Transition risk; Climate change;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finsta:v:69:y:2023:i:c:s1572308923000906. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jfstabil .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.