Shadow banking and climate change, the “hidden leaf” of green credit risk policy

Corentin Roussel

Economics Letters, 2024, vol. 243, issue C

Abstract: The paper studies the influence of shadow banking on the efficiency of two important green prudential proposals for credit risk of traditional banks : the Green Supporting Factor (GSF) and the Brown Penalizing Factor (BPF). Through an environmental general equilibrium model, the paper shows that, without shadow banks in the model, the use of the BPF or GSF generates a negative relationship between banking stability and environmental benefits. By introducing shadow banks, the use of BPF allows to maintain banking stability and to generate environmental benefits at the same time. These results emphasize the need to take into account shadow banking sector in a consistent assessment of green credit risk regulation proposals.

Keywords: Credit risk; Prudential regulation; Shadow banking; Green finance; DSGE (search for similar items in EconPapers)
JEL-codes: E44 E51 G21 Q54 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524003835

DOI: 10.1016/j.econlet.2024.111899

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