 Shadow banking and carbon transition risk. Chapter 7 in (Mis)managing Macroprudential Expectations, 2023, pp 128-144 from Edward Elgar Publishing Abstract: This chapter investigates the potential for shadow banking lending to emerge around collateral vulnerable to climate transition risk. It foregrounds the limits of using exploratory stress tests and shadow carbon prices to shape expectations around the vulnerability of the UK financial system to climate transition risk The chapter provides an overview of the mechanics and development of the shadow banking system before critiquing attempts by banks to define green collateral and develop green repurchase agreements. In lieu of robust methods to incorporate climate change risk into assessments of the value of collateral, the shadow banking system provides a mechanism through which carbon transition risks can be distributed and lending secured against carbon assets. The chapter concludes by explaining how collateral that is vulnerable to carbon transition risk has the potential to destabilize repo markets in shadow banking. It details how repo markets create dynamic networks around pieces of collateral and sketches out how these networked spaces may act as a transmission mechanism for carbon liquidity spirals. Keywords: Economics and Finance; Environment; Geography; Politics and Public Policy Sociology and Social Policy; Sustainable Development Goals (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:elg:eechap:20770_7 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in Chapters from Edward Elgar Publishing |
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