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Climate Change and Financial Stability: The Weather Channel

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Abstract

Climate change could affect banks and the financial systems they anchor through various channels: increasingly extreme weather is one (Financial Stability Board, Basel Committee on Bank Supervision). In our recent staff report, we size up this channel by studying how U.S. banks, large and small, fared against disasters past. We find even the most destructive disasters had insignificant or small effects on bank stability and small and positive effects on bank income. We conjecture that recovery lending after disasters helps stabilize larger banks while smaller, local banks’ knowledge of “unmarked” (flood) hazards may help them navigate disaster risk. Federal disaster aid seems not to act as a bank stabilizer.

Suggested Citation

  • Kristian S. Blickle & Donald P. Morgan, 2022. "Climate Change and Financial Stability: The Weather Channel," Liberty Street Economics 20220404, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:93906
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    File URL: https://libertystreeteconomics.newyorkfed.org/2022/04/climate-change-and-financial-stability-the-weather-channel/
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    Keywords

    climate change; financial stability;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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