Severe Weather and Collateral Practices

Cristina Cella () and Valentin Schubert ()
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Cristina Cella: Financial Stability Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Valentin Schubert: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 460, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Physical climate risks significantly influence banks’ collateral practices. Drawing on comprehensive loan-level data from Sweden, we find that adverse weather events increase both the likelihood and the amount of collateral required for new loans. For existing loans, banks are less inclined to reappraise collateral following weather shocks; when reappraisals occur, collateral values are typically revised downward. Our analysis also highlights the mitigating role of geographic proximity between borrowers and lenders. Overall, our results indicate that while banks limit potential losses from physical climate risks by tightening collateral requirements, this practice may eventually exacerbate firms’ financial constraints.

Keywords: bank lending; collateral; climate risk (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2026-01-01
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