The Impact of Climate Resilience on Banks’ Financial Stability

Esengül Özdemir Altınışık and Melek Yıldız

Journal of Research in Economics, Politics & Finance, 2025, vol. 10, issue SI, 360-382

Abstract: The increasing volume of global trade driven by production and consumption following the Industrial Revolution has negatively impacted the socioeconomic environment. In response to climate risks, the globalized industry is seeking sustainable and green financial methods. For sustainable financial stability, climate change risks must be considered, and financial systems must limit their regulations within legal frameworks. In this context, the primary objective of this study is to examine the impact of countries' resilience and adaptation capacity to the adverse impacts of climate change on the stability of the banking sector. In the model constructed for this purpose, the bank Z-score is used as the dependent variable representing banks' financial stability, while the climate resilience index (CRI), carbon emissions (CO2), economic growth (GDPG), economic freedom index (EFI), and political stability and absence of violence/terrorism (PS) are used as independent variables. The AMG test, a modern estimator that takes into account heterogeneity and cross-sectional dependence, was applied to a large panel of 96 countries. The analysis findings indicate that countries' resilience and adaptation capacity to climate change positively impact the stability of the banking sector. Economic growth has also been found to have an improving effect on the financial stability of the banking sector.

Keywords: Climate Resilience; Financial Stability; AMG (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 Q54 Q58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ahs:journl:v:10:y:2025:i:si:p:360-382

DOI: 10.30784/epfad.1813728

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