Climate-change regulations: Bank lending and real effects

Faruk Miguel, Alvaro Pedraza and Claudia Ruiz-Ortega

Journal of Financial Stability, 2024, vol. 70, issue C

Abstract: We analyze how capital requirements from environmental risk exposure affect bank lending to the corporate sector, and how these effects transmit to real economic activity and to greenhouse gas emissions. To do so, we exploit the introduction of a policy in Brazil that required banks to incorporate environmental risks in their capital assessments. Using comprehensive credit data, we find that the policy induces large banks to reallocate their lending away from exposed sectors. The credit contraction has no substantial impact on the real activity and greenhouse gas emissions of these sectors, as smaller banks expand their lending afterwards. However, the policy triggers a moderate labor reallocation from small firms (i.e., those with higher costs of switching lenders) and into large firms within environmentally exposed sectors.

Keywords: Capital requirements; Climate change; Bank lending; Real effects (search for similar items in EconPapers)
JEL-codes: D62 G21 G28 Q54 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:70:y:2024:i:c:s1572308923001122

DOI: 10.1016/j.jfs.2023.101212

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