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How Exposed Are U.S. Banks’ Loan Portfolios to Climate Transition Risks?

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Abstract

Much of the work on climate risk has focused on the physical effects of climate change, with less attention devoted to “transition risks” related to negative economic effects of enacting climate-related policies and phasing out high-emitting technologies. Further, most of the work in this area has measured transition risks using backward-looking metrics, such as carbon emissions, which does not allow us to compare how different policy options will affect the economy. In a recent Staff Report, we capitalize on a new measure to study the extent to which banks’ loan portfolios are exposed to specific climate transition policies. The results show that while banks’ exposures are meaningful, they are manageable.

Suggested Citation

  • Hyeyoon Jung & João A. C. Santos & Lee Seltzer, 2023. "How Exposed Are U.S. Banks’ Loan Portfolios to Climate Transition Risks?," Liberty Street Economics 20230710, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:96458
    Note: Editor’s note: Since this post was first published, the y-axis labels in the first four charts have been corrected. July 10, 12:30 p.m.
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    File URL: https://libertystreeteconomics.newyorkfed.org/2023/07/how-exposed-are-u-s-banks-loan-portfolios-to-climate-transition-risks/
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    More about this item

    Keywords

    risk exposures; climate risk; banks; Network for Greening the Financial System (NGFS) scenarios;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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