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Green loans and bank risk: Navigating the path to sustainable finance

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  • Di Tommaso, Caterina
  • Pacelli, Vincenzo
  • Povia, Maria Melania

Abstract

This paper investigates the relationship between green loans and the banks' risk as measured by credit default swaps (CDS). We analyze a sample of 308 green loans issued by 47 international banks. We assess the short-term impact of green loans on the CDS spread and the factors affecting the CDS spread of a bank issuing a green loan. We find a “green effect” in issuing a green loan. The banks benefit in terms of reputation. The pattern is confirmed across all regions with specific factors affecting the Cumulative Abnormal Returns (CAR). Green bond characteristics and country-specific features significantly influence CARs, although the effects vary across regions.

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  • Di Tommaso, Caterina & Pacelli, Vincenzo & Povia, Maria Melania, 2025. "Green loans and bank risk: Navigating the path to sustainable finance," International Review of Economics & Finance, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025003016
    DOI: 10.1016/j.iref.2025.104138
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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