A climate stress testing exercise on loans to European small and medium enterprises

Yujia Chen, Zhenghong Ding, Luca Barbaglia (), Raffaella Calabrese and Serena Fatica
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Luca Barbaglia: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en

No 2025-06, JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission

Abstract: "This paper assesses the impact of floods on credit to European small and medium-sized enterprises (SMEs) using a discrete-time survival model. We find a statistically significant relationship between the default probability of loans to SMEs and floods occurring in the region where the firm is located. We propose a micro-level stress testing exercise to assess the performance of small business loans under different climate scenarios.Our results allow us to identify the European regions with heightened vulnerability under a stressed climate scenario and to quantify the impacts upon individual firms in terms of increases in loan default probability."

Date: 2025-07
New Economics Papers: this item is included in nep-eec, nep-eur and nep-sbm
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