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Climate risk and bank stability: International evidence

Author

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  • Le, Anh-Tuan
  • Tran, Thao Phuong
  • Mishra, Anil V.

Abstract

The paper studies the association between climate risk and bank stability. Using an international sample of 6433 commercial banks in 109 countries between 2005 and 2019, we illustrate that increased climate risk leads to decreased bank stability. These findings are robust to alternative bank stability measures and after controlling for endogeneity by an instrumental variable and system GMM approach. Further analysis shows that the negative impact of climate risk on bank stability is more pronounced in small banks and banks that have low capital. In addition, we also find better institutional governance, bank supervision, and regulations can eliminate the adverse impact of climate risk. Our results are neither determined by the effect of the financial crisis nor by the heterogeneity of different regions. Overall, our findings add a novel determinant of bank stability globally.

Suggested Citation

  • Le, Anh-Tuan & Tran, Thao Phuong & Mishra, Anil V., 2023. "Climate risk and bank stability: International evidence," Journal of Multinational Financial Management, Elsevier, vol. 70.
    • Handle: RePEc:eee:mulfin:v:70-71:y:2023:i::s1042444x23000439
    DOI: 10.1016/j.mulfin.2023.100824
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    Keywords

    Climate risk; Bank stability; Institutional quality; Bank supervision and regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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