Climate Change-Related Regulatory Risks and Bank Lending

Isabella Mueller and Eleonora Sfrappini

No 2670, Working Paper Series from European Central Bank

Abstract: We identify the effect of climate change-related regulatory risks on credit real-location. Our evidence suggests that effects depend borrower's region. Following an increase in salience of regulatory risks, banks reallocate credit to US frms that could be negatively impacted by regulatory interventions. Conversely, in Europe, banks lend more to firms that could benefit from environmental regulation. The effect is moderated by banks' own loan portfolio composition. Banks with a portfolio tilted towards firms that could be negatively a affected by environmental policies increasingly support these firms. Overall, our results indicate that financial implications of regulation associated with climate change appear to be the main drivers of banks' behavior. JEL Classification: G21, Q51, Q58

Keywords: climate change; climate risk; credit reallocation; Paris Agreement (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-ban, nep-ene, nep-env, nep-fdg and nep-reg
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222670

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