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"There is No Planet B", but for Banks There are "Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending

Author

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  • Ongena, Steven
  • Benincasa, Emanuela
  • Kabas, Gazi

Abstract

We document that lenders react to domestic climate policy stringency by increasing cross-border lending. We use loan fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with regulatory arbitrage, the positive effect decreases in borrowers’ climate policy stringency and is absent if the borrower country has a higher stringency. Furthermore, climate policy stringency decreases loan supply to domestic borrowers with high carbon risk while increasing loan supply if such borrowers are abroad. Our results suggest that cross-border lending enables lenders to exploit the lack of global coordination in climate policies.

Suggested Citation

  • Ongena, Steven & Benincasa, Emanuela & Kabas, Gazi, 2021. ""There is No Planet B", but for Banks There are "Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending," CEPR Discussion Papers 16665, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16665
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    Keywords

    Cross-border lending; Climate policy; Regulatory arbitrage; Syndicated loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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