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Severe Weather and Collateral Practices

Author

Listed:
  • Cella, Cristina

    (Financial Stability Department, Central Bank of Sweden)

  • Schubert, Valentin

    (Research Department, Central Bank of Sweden)

Abstract

Physical climate risks significantly influence banks’ collateral practices. Drawing on comprehensive loan-level data from Sweden, we find that adverse weather events increase both the likelihood and the amount of collateral required for new loans. For existing loans, banks are less inclined to reappraise collateral following weather shocks; when reappraisals occur, collateral values are typically revised downward. Our analysis also highlights the mitigating role of geographic proximity between borrowers and lenders. Overall, our results indicate that while banks limit potential losses from physical climate risks by tightening collateral requirements, this practice may eventually exacerbate firms’ financial constraints.

Suggested Citation

  • Cella, Cristina & Schubert, Valentin, 2026. "Severe Weather and Collateral Practices," Working Paper Series 460, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0460
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    References listed on IDEAS

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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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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