“There is No Planet B", but for Banks “There are Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending

Emanuela Benincasa, Gazi Kabaş and Steven Ongena
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Emanuela Benincasa: Swiss Finance Institute; University of Zurich - Department of Banking and Finance

No 22-28, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We document that lenders react to domestic climate policy stringency by increasing cross-border lending. We use granular fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with regulatory arbitrage, the positive effect decreases in borrowers’ climate policy stringency and is absent if the borrower country has a higher stringency. Furthermore, climate policy stringency decreases loan supply to domestic borrowers with high carbon risk while increasing loan supply if such borrowers are abroad. Our results suggest that crossborder lending can enable lenders to exploit the lack of global coordination in climate policies.

Keywords: Cross-Border Lending; Climate Policy; Regulatory Arbitrage; Syndicated Loans (search for similar items in EconPapers)
JEL-codes: G21 H73 Q58 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2022-04
New Economics Papers: this item is included in nep-ban, nep-eec, nep-ene, nep-env, nep-fdg and nep-ifn
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Related works:
Working Paper: "There is No Planet B", but for Banks There are "Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2228

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