Climate Risk and Financial Stability: Evidence from Syndicated Lending

Event Date: 5 April 2023

Speaker: Xing Huan. EDHEC Business School, France

Time: 2pm

Venue: Cathedral Wing, Strathclyde Business School, CW506A

Abstract:

We study the impact of unexpected climate shocks on banks’ individual and systemic risks. Employing climate risk measures developed using the Billion-Dollar Weather and Climate Disasters data from the National Oceanic and Atmospheric Administration (NOAA) and Dealscan syndicated lending data, we find that climate risk exposure acquired through cross-state lending increases banks’ individual and systemic risks. We also find that banks reduce lending and increase loan loss reserves subsequent to the experience of an unexpected climate shock. Our results are robust to several alternative climate risk measures, a variety of model specifications, and the loan-level analysis. We contribute to a growing literature on the impact of climate risk on financial stability and the development of robust measures of climate risk for banks.

Published: 30 March 2023