Climate Stress Tests, Bank Lending, and the Transition to the Carbon-Neutral Economy
Larissa Fuchs, Huyen Nguyen, Trang Nguyen, Klaus Schaeck
SSRN Working Papers,
No. 4427729,
2023
Abstract
Does banking supervision affect borrowers’ transition to the carbon-neutral economy? We use a unique identification strategy that combines the French bank climate pilot exercise with borrowers’ carbon emissions to present two novel findings. First, climate stress tests actively facilitate borrowers’ transition to a low-carbon economy through a lending channel. Stress-tested banks increase loan volumes but simultaneously charge higher interest rates for brown borrowers. Second, additional lending is associated with some improvements in environmental performance. While borrowers commit more to reduce carbon emissions and are more likely to evaluate environmental effects of their projects, they neither reduce direct carbon emissions, nor terminate relationships with environmentally unfriendly suppliers. Our findings establish a causal link between bank climate stress tests and borrowers’ reductions in transition risk.
Read article
Regulation and Information Costs of Sovereign Distress: Evidence from Corporate Lending Markets
Iftekhar Hasan, Suk-Joong Kim, Panagiotis Politsidis, Eliza Wu
Journal of Corporate Finance,
October
2023
Abstract
We examine the effect of sovereign credit impairments on the pricing of syndicated loans following rating downgrades in the borrowing firms' countries of domicile. We find that the sovereign ceiling policies used by credit rating agencies create a disproportionately adverse impact on the bounded firms' borrowing costs relative to other domestic firms following their sovereign's rating downgrade. Rating-based regulatory frictions partially explain our results. On the supply-side, loans carry a higher spread when granted from low-capital banks, non-bank lenders, and banks with high market power. We further document an operating demand-side channel, contingent on borrowers' size, financial constraints, and global diversification. Our results can be attributed to the relative bargaining power between lenders and borrowers: relationship borrowers and non-bank dependent borrowers with alternative financing sources are much less affected.
Read article
Internationalisation
Internationalisation The Leibniz Institute for Economic Research Halle (IWH) is responsible for economic research and economic policy advice on a scientific basis. The institute…
See page
Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
See page
Charts
Info Graphs Sometimes pictures say more than a thousand words. Therefore, we selected a few graphs to present our main topics visually. If you should have any questions or would…
See page
Financial Stability
Financial Systems: The Anatomy of the Market Economy How the financial system is constructed, how it works, how to keep it fit and what good a bit of chocolate can do. Dossier In…
See page
The Political Economy of the European Banking Union
The Political Economy of the European Banking Union Junior Professorship Lena Tonzer, PhD: The Political Economy of the European Banking Union: Causes for National Differences in…
See page
Privacy
Data Protection Policy We take the protection of your personal data very seriously and treat your personal data with confidentiality and in compliance with the provisions of law…
See page
Brown Bag Seminar
Brown Bag Seminar Financial Markets Department The seminar series "Brown Bag Seminar" was offered on a regular basis by members of the Financial Markets department and their…
See page
Speed Projects
Speed Projects On this page, you will find the IWH EXplore Speed Projects in chronologically descending order. 2021 2020 2019 2018 2017 2016 2015 2014 2021 SPEED 2021/01…
See page
