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How do extreme climate risks affect banking active risk-taking? Empirical evidence from 107 countries

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  • Tang, Qirui
  • Fang, Yi

Abstract

Leveraging banking data from 107 countries between 2001 and 2020, this study explores the influence of extreme natural disasters on the banking industry's active risk-taking. The results reveal that the occurrence of extreme natural disasters leads to a reduction in active risk-taking and the magnitude of impacts caused by different types of disasters varies. Mechanism analysis shows that disasters reduce banks' active risk-taking levels by affecting the profitability of the demand side of funds. Heterogeneity analysis demonstrates that the impact of natural disasters on banking sectors' active risk-taking varies with national industrial structure. Banks in net energy-importing countries are more susceptible to the effects of natural disasters on active risk-taking. Furthermore, using machine learning methods, we demonstrate that natural disaster indicators are important predictors of financial crises and should be incorporated into early warning systems.

Suggested Citation

  • Tang, Qirui & Fang, Yi, 2026. "How do extreme climate risks affect banking active risk-taking? Empirical evidence from 107 countries," Research in International Business and Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:riibaf:v:82:y:2026:i:c:s0275531925005033
    DOI: 10.1016/j.ribaf.2025.103247
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