Climate Interconnectedness and Financial Stability

Miia Chabot, Jean-Louis Bertrand and Valentin Courquin

Finance, 2023, vol. 44, issue 4, 145-195

Abstract: Climate risks directly affect a wide range of non-financial firms, and indirectly affect the financial institutions that lend to or invest in them. In this paper, we explore the influence of climate risks on financial stability of European financial institutions using network analysis and panel regressions. The determination of interconnectedness variables and the graphical representations of climate networks allow the identification of climate systemic important financial institutions and risk concentrations. Our work contributes to the development of new macroprudential metrics to capture climate risks and address climate-related risk from a systemic perspective. JEL classification Q51, Q54, G21, G22, G28, L14, D85

Keywords: Financial Stability; Physical Climate Risk; Transition Risk; Networks; Interconnectedness; Prudential Policy (search for similar items in EconPapers)
JEL-codes: D85 G21 G22 G28 L14 Q51 Q54 (search for similar items in EconPapers)
Date: 2023
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