LSIs’ Exposures to Climate-Change-Related Risks: An Approach to Assess Physical Risks
Maria Sole Pagliari
International Journal of Central Banking, 2023, vol. 19, issue 1, 1-54
Abstract:
This paper proposes an approach to estimate the impact of adverse climatic events on the profitability of small European banks (LSIs). By considering river flooding phenomena, we construct a unique database matching the information on location, frequency, and severity of floods with the location and balance sheet data of institutions mainly operating in the areas where they are headquartered (territorial LSIs). We compare the performance of territorial LSIs across regions at low and high flooding risk and test for the “core lending channel” hypothesis, whereby lending to the real economy is a catalyst of physical risks. Results show that an adverse event dropping loans to households and non-financial corporations by 1 percentage point of total assets entails a decrease in the return on assets (ROA) of territorial LSIs in riskier areas by 0.001 percentage point (3.1 percent). Moreover, if all territorial LSIs were located in riskier areas, the average ROA would drop by between 0.0001 and 0.52 percentage point for half of the banks in the sample, accounting for around 17 percent of the LSI sector’s assets.
JEL-codes: C33 G21 Q54 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
http://www.ijcb.org/journal/ijcb23q1a1.pdf (application/pdf)
http://www.ijcb.org/journal/ijcb23q1a1.htm (text/html)
Related works:
Working Paper: LSIs’ exposures to climate change related risks: an approach to assess physical risks (2021) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2023:q:1:a:1
Access Statistics for this article
International Journal of Central Banking is currently edited by Loretta J. Mester
More articles in International Journal of Central Banking from International Journal of Central Banking
Bibliographic data for series maintained by Bank for International Settlements ().