Climate threats to bank default risk and financial stability: Any market concern about the ECB 2022 climate risk stress test?

Amavi Agbodgi (), Emmanuelle Nys and Viktoriia Paimanova ()
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Amavi Agbodgi: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges
Viktoriia Paimanova: b Campus Bio-Medico University of Rome, Faculty of Engineering, Via Álvaro del Portillo, 21, 00128 Rome, Italy

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Abstract: This paper examines the market reaction to the 2022 publication of the first-ever ECB climate risk stress test results, revealing whether there is any concern about climate change threats to European financial stability. Bank default risk is measured through the CDS spreads from banks that the ECB tested on their climate risk resilience. Our findings reveal a significant increase in the risk premium required by market participants, specifically for short and medium CDS maturities. Interestingly, we also did not find evidence that ESG considerations can serve as a protective shield against risk premium, on the contrary.

Keywords: JEL classification: G01 G21 G28 Climate stress test ESG Bank default risk Financial stability; JEL classification: G01; G21; G28 Climate stress test; ESG; Bank default risk; Financial stability (search for similar items in EconPapers)
Date: 2024-09-30
Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-04715131v1
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