U.S. Banks’ Exposures to Climate Transition Risks

Hyeyoon Jung, Joao Santos and Lee Seltzer

No 1058, Staff Reports from Federal Reserve Bank of New York

Abstract: We propose a new approach to estimate banks’ credit exposures to transition risks that combines sectoral effects of climate policies from general equilibrium (GE) models with historical information on loans’ default risks. At worst, estimated exposures reach 14 percent of bank loan portfolio values. Accounting for historic loan payoff structures reduces exposures to 0.5 percent–2 percent. Exposures can increase by 3–5 percentage points due to aggregate economic shocks. Analyses surrounding climate transition events suggest our estimates can serve as an upper bound on banks’ transition risk exposures. Highlighting our measure’s novelty, emissions explain at most 60 percent of variation in banks’ exposures.

Keywords: banks; climate risk; climate; climate transition risks; Network for Greening the Financial System (NGFS) scenarios (search for similar items in EconPapers)
JEL-codes: G21 H23 Q54 (search for similar items in EconPapers)
Pages: 79
Date: 2023-04-01
New Economics Papers: this item is included in nep-ban, nep-des, nep-ene, nep-env and nep-fdg
Note: Revised June 2026.
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Citations: View citations in EconPapers (7)

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Chapter: US banks' exposures to climate transition risks (2025)
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