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Green Lending

Author

Listed:
  • Manthos D. Delis

    (Audencia Business School)

  • Maria Iosifidi

    (Montpellier Business School)

  • Panayotis Michaelides

    (National Technical University of Athens (NTUA))

  • Steven Ongena

    (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

Abstract

We develop a dynamic model of bank credit allocation between green and brown projects under regulatory and monetary distortions. Banks optimally adjust portfolios as regulation reduces the expected returns and success probabilities of brown projects, while monetary policy shapes funding costs. These interacting channels persistently tilt lending incentives, reallocating credit toward greener activities and lowering emissions. The framework identifies which combinations of regulatory pressure and monetary support most effectively accelerate the green transition. Results remain robust with forward-looking banks, adjustment costs, and alternative policy rules. We further analyze how persistent regime shifts in regulation and monetary policy reshape the speed and composition of bank balance-sheet reallocation.

Suggested Citation

  • Manthos D. Delis & Maria Iosifidi & Panayotis Michaelides & Steven Ongena, 2026. "Green Lending," Swiss Finance Institute Research Paper Series 26-19, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2619
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5317801
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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