Review of Corporate Finance > Vol 4 > Issue 1–2

Climate Change, Bank Fragility, and Systemic Risk

Yuna Heo, Faculty of Business and Economics, University of Basel, Switzerland,
Suggested Citation
Yuna Heo (2024), "Climate Change, Bank Fragility, and Systemic Risk", Review of Corporate Finance: Vol. 4: No. 1–2, pp 127-150.

Publication Date: 18 Apr 2024
© 2024 Y. Heo
Corporate finance,  Financial markets,  Environmental economics,  Climate change
JEL Codes: G15, G32, G38, Q54
Climate changefinancial stabilitysystemic riskbank default riskclimate adaptationclimate resiliencebank fragility


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In this article:
Empirical Results 
Climate Adaptation Policy 


This paper explores how climate change affects bank fragility. The main results show that both physical and transitional climate changes lead to substantial increases in systemic risk. The effect is more pronounced for banks with higher climate change exposure, higher loan portfolio synchronicity, and higher bank default probability. These results are robust to using an instrumental variable approach. Further, by exploiting staggered adoptions of climate adaptation policy across states, this study documents that climate adaptation can reduce systemic risk caused by climate change. Overall, the findings in this paper provide suggestive evidence that climate change exacerbates financial instability, but adaptation policy can build resilience to climate impacts.



Review of Corporate Finance, Volume 4, Issue 1–2 Special Issue on Sustainable and Climate Finance: Articles Overiew
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