Impact and transmission mechanism of China’s climate policy uncertainty on bank risk-taking

This study examines the relationship between China’s climate policy uncertainty (CCPU) and the risk-taking behaviors of 42 listed commercial banks in China from 2010 to 2022. The findings indicate that: (1) CCPU positively influences both active and passive risk-taking among Chinese banks, a finding that contrasts with conclusions drawn from studies employing similar methodologies but utilizing U.S. CPU. This divergence underscores the importance of context-specific analysis in understanding the nuances of CPU’s impact on bank risk-taking behavior. (2) CCPU increases active risk-taking in non-state-owned banks but decreases it in state-owned banks. Among systemically important banks, CCPU has a lesser impact on active risk-taking but a greater impact on passive risk-taking compared to non-systemically important banks. (3) Mediating analysis indicates that the return on assets acts as a masking effect between CCPU and banks’ active risk-taking, while the loan-to-deposit ratio and loan loss provision ratio exhibit partial mediating effects. The green credit ratio, however, shows no mediating effect. (4) The panel threshold effect analysis reveals that the impact of CCPU on bank risk-taking is non-linear. A higher loan-to-deposit ratio magnifies the impact of CCPU on active risk-taking, while a higher loan loss provision ratio intensifies the impact on passive risk-taking. Considering these findings, it is recommended that commercial banks, particularly non-state-owned and non-systemically important ones, vigilantly track CCPU trends and implement proactive measures to mitigate potential risks. Special effort should be directed towards improving the return on assets, reducing the loan-to-deposit ratio and the loan loss provision ratio. Concurrently, government bodies should strive to control the CCPU levels, with regulatory authorities steering commercial banks towards effective CCPU risk management and strategic preparedness.