Climate risk and bank stability: International evidence

Anh-Tuan Le, Thao Phuong Tran and Anil Mishra ()

Journal of Multinational Financial Management, 2023, vol. 70-71

Abstract: The paper studies the association between climate risk and bank stability. Using an international sample of 6433 commercial banks in 109 countries between 2005 and 2019, we illustrate that increased climate risk leads to decreased bank stability. These findings are robust to alternative bank stability measures and after controlling for endogeneity by an instrumental variable and system GMM approach. Further analysis shows that the negative impact of climate risk on bank stability is more pronounced in small banks and banks that have low capital. In addition, we also find better institutional governance, bank supervision, and regulations can eliminate the adverse impact of climate risk. Our results are neither determined by the effect of the financial crisis nor by the heterogeneity of different regions. Overall, our findings add a novel determinant of bank stability globally.

Keywords: Climate risk; Bank stability; Institutional quality; Bank supervision and regulation (search for similar items in EconPapers)
JEL-codes: G21 Q54 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:70-71:y:2023:i::s1042444x23000439

DOI: 10.1016/j.mulfin.2023.100824

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