Too-big-to-strand? Bond versus bank financing in the transition to a low-carbon economy

Winta Beyene, Manthos Delis, Kathrin De Greiff and Steven Ongena

No 16692, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: What is the role market- and bank-based debt plays in the climate transition process? We present evidence that bond markets price the risk that reserves held by fossil fuel firms strand, while banks in the syndicated loan market do not. Consequently, fossil fuel firms increasingly rely less on bonds and more on loans. We interpret the within-firm bond-to-loan substitution in stranding risk as a contraction in the supply of bond credit versus bank credit. Within the banking sector, big banks provide cheaper and more financing to fossil fuel firms, possibly giving rise to a novel “too-big-to-strand†concern for banking regulators.

Keywords: Climate policy risk; Financial intermediation; Stranded assets; Credit misallocation (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2021-11
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Working Paper: Too-big-to-strand? Bond versus bank financing in the transition to a low-carbon economy (2024)
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