Climate supervisory shocks and bank lending: empirical evidence from microdata

Maria Alessia Aiello

No 1465, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In the absence of regulatory capital requirements for climate-related financial risks, this paper studies the short-term effects of how the increased focus on these risks by the Single Supervisory Mechanism (SSM) since 2020 has affected lending channels of European banks through credit reallocation and different credit spreads. By using an ad hoc methodology to infer firm-level emissions matched to supervisory microdata, I find that banks under the direct supervision of the SSM reallocated credit towards less polluting firms after the publication of the climate supervisory expectations. The results are robust to controlling for Covid-19 guaranteed loans, and the credit reallocation effect is entirely driven by the treated banks with climate commitments. The evidence is mixed when focusing on high-emitting borrowers who commit to reducing future carbon emissions, suggesting that forward-looking information plays a limited role for banks in the credit process. The results are useful for policymakers in assessing how supervisory actions could incentivize banks to manage climate-related risks better, and whether banks should divest from polluting companies or become more involved in supporting the transition.

Keywords: climate risk; climate stress test; carbon emissions; banking supervision; lending (search for similar items in EconPapers)
JEL-codes: D62 E58 G21 G28 Q50 (search for similar items in EconPapers)
Date: 2024-10
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