Weathering the storm: How climate risks shape bank credit risk in European banks

Adriano Bellinvia, Valeria Venturelli, Paola Brighi and Carmelo Algeri

Finance Research Letters, 2025, vol. 81, issue C

Abstract: This paper investigates the impact of climate risk on banks' credit risk. Using a sample of 102 banks across 21 countries in the European Economic Area (EEA) from Q3 2019 to Q2 2023, we develop a novel approach to quantifying climate risk based on banks' loan exposures to industries and countries. Our findings indicate that climate transition risk (CTR), climate physical risk (CPR), and total climate risk (CR) significantly increase banks' credit risk. These results hold across alternative credit risk measures, offering valuable insights for financial institutions, policymakers and regulators.

Keywords: Climate transition risk; Climate physical risk; Climate risk; Credit risk; European banks (search for similar items in EconPapers)
JEL-codes: G21 G32 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007706

DOI: 10.1016/j.frl.2025.107511

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