Climate stress tests, bank lending, and the transition to the carbon-neutral economy

Larissa Fuchs, Huyen Ngyuen, Trang Nguyen and Klaus Schaeck

No 9/2024, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We ask if bank supervisors' efforts to combat climate change affect banks' lending and their borrowers' transition to the carbon-neutral economy. Combining information from the French supervisory agency's climate pilot exercise with borrowers' emission data, we first show that banks that participate in the exercise increase lending to high-carbon emitters but simultaneously charge higher interest rates. Second, participating banks collect new information about climate risks, and boost lending for green purposes. Third, receiving credit from a participating bank facilitates borrowers' efforts to improve environmental performance. Our findings establish a hitherto undocumented link between banking supervision and the transition to net-zero.

Keywords: banking supervision; carbon risk; climate stress test; green finance; syndicated loans (search for similar items in EconPapers)
JEL-codes: G21 G28 K11 (search for similar items in EconPapers)
Date: 2024, Revised 2024
New Economics Papers: this item is included in nep-ban, nep-ene, nep-env and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:287752

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