Green Lending

Manthos D. Delis, Maria Iosifidi, Panayotis Michaelides and Steven Ongena
Additional contact information
Manthos D. Delis: Audencia Business School
Maria Iosifidi: Montpellier Business School
Panayotis Michaelides: National Technical University of Athens (NTUA)
Steven Ongena: University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

No 26-19, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We develop a dynamic model of bank credit allocation between green and brown projects under regulatory and monetary distortions. Banks optimally adjust portfolios as regulation reduces the expected returns and success probabilities of brown projects, while monetary policy shapes funding costs. These interacting channels persistently tilt lending incentives, reallocating credit toward greener activities and lowering emissions. The framework identifies which combinations of regulatory pressure and monetary support most effectively accelerate the green transition. Results remain robust with forward-looking banks, adjustment costs, and alternative policy rules. We further analyze how persistent regime shifts in regulation and monetary policy reshape the speed and composition of bank balance-sheet reallocation.

Keywords: Green lending; Monetary policy; Environmental regulation; Optimal policy (search for similar items in EconPapers)
JEL-codes: E44 E52 G21 G28 (search for similar items in EconPapers)
Pages: 80 pages
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2619

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