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Climate risk and bank liquidity creation: International evidence

Author

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  • Lee, Chien-Chiang
  • Wang, Chih-Wei
  • Thinh, Bui Tien
  • Xu, Zhi-Ting

Abstract

This study examines the impact of climate risk on bank liquidity creation in 56 countries over the period 1995–2012. Specifically, it investigates whether the relationship between climate risk and bank liquidity creation varies by bank and country characteristics. The results reveal that climate sensitivity and exposure have negative impacts on overall liquidity creation, whereas climate adaptation has positive effects. These effects are more pronounced for larger banks with lower capital, banks located in lower-GDP and developing countries, and those in Asia. The results suggest that policymakers should exercise caution when formulating and implementing climate-related strategies, as these can influence liquidity creation, which in turn can affect macroeconomic stability.

Suggested Citation

  • Lee, Chien-Chiang & Wang, Chih-Wei & Thinh, Bui Tien & Xu, Zhi-Ting, 2022. "Climate risk and bank liquidity creation: International evidence," International Review of Financial Analysis, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:finana:v:82:y:2022:i:c:s1057521922001594
    DOI: 10.1016/j.irfa.2022.102198
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    More about this item

    Keywords

    Climate sensitivity; Climate exposure; Climate adaptive capability; Bank liquidity creation;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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