"There is No Planet B", but for Banks There are "Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending

Steven Ongena, Emanuela Benincasa and Gazi Kabaş

No 16665, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We document that lenders react to domestic climate policy stringency by increasing cross-border lending. We use loan fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with regulatory arbitrage, the positive effect decreases in borrowers’ climate policy stringency and is absent if the borrower country has a higher stringency. Furthermore, climate policy stringency decreases loan supply to domestic borrowers with high carbon risk while increasing loan supply if such borrowers are abroad. Our results suggest that cross-border lending enables lenders to exploit the lack of global coordination in climate policies.

Keywords: Cross-border lending; Climate policy; Regulatory arbitrage; Syndicated loans (search for similar items in EconPapers)
JEL-codes: G21 H73 Q58 (search for similar items in EconPapers)
Date: 2021-10
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Working Paper: “There is No Planet B", but for Banks “There are Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending (2022)
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