Stress Testing European Banks’ Transition Risk and Lending Behavior

Olivier de Bandt, David Nefzi, Johannes-Gabriel Werner

Working papers from Banque de France

Abstract: This paper investigates whether supervisory climate stress tests change how euro-area banks price and allocate credit according to borrowers’ transition risk. We combine loan-level data from the Eurosystem’s AnaCredit database with a firm-level measure of greenhouse-gas (GHG) intensity and compare banks subject to the ECB’s 2021-22 climate stress test with non-participating banks. A difference-in-differences-in-slopes design estimates whether the sensitivity of new-loan spreads to carbon intensity changed after the exercise. The average shift in this spread-intensity relationship is small and statistically insignificant. However, decomposing the aggregate effect reveals economically meaningful and offsetting adjustments. Participating banks reallocate new credit away from more carbon-intensive incumbent borrowers, while applying more carbon-sensitive pricing to relationships that enter or exit their portfolios; for new borrowers, a one-standard-deviation increase in carbon intensity is associated with about 10 basis points higher spreads. By contrast, repricing within continuing bank-firm relationships remains limited. The effects are strongest among the most carbon-intensive firms, and participation in the more demanding bottom-up module does not generate a clearly additional response. Overall, climate stress tests appear to operate mainly through portfolio recomposition and extensive-margin pricing, consistent with an information-and-supervisory-scrutiny channel rather than a broad repricing of existing loans.

Keywords: Banking; Climate Stress Tests; Transition Risk; Credit Register; Loan Pricing; Carbon Intensity (search for similar items in EconPapers)
JEL-codes: C23 E51 E58 G21 G28 G32 Q54 (search for similar items in EconPapers)
Pages: 118 pages
Date: 2026
New Economics Papers: this item is included in nep-eur
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1059

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