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Climate threats to bank default risk and financial stability: Any market concern about the ECB 2022 climate risk stress test?

Author

Listed:
  • Amavi Agbodgi

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Emmanuelle Nys

    (LAPE, Université de Limoges)

  • Viktoriia Paimanova

    (b Campus Bio-Medico University of Rome, Faculty of Engineering, Via Álvaro del Portillo, 21, 00128 Rome, Italy)

Abstract

This paper examines the market reaction to the 2022 publication of the first-ever ECB climate risk stress test results, revealing whether there is any concern about climate change threats to European financial stability. Bank default risk is measured through the CDS spreads from banks that the ECB tested on their climate risk resilience. Our findings reveal a significant increase in the risk premium required by market participants, specifically for short and medium CDS maturities. Interestingly, we also did not find evidence that ESG considerations can serve as a protective shield against risk premium, on the contrary.

Suggested Citation

  • Amavi Agbodgi & Emmanuelle Nys & Viktoriia Paimanova, 2024. "Climate threats to bank default risk and financial stability: Any market concern about the ECB 2022 climate risk stress test?," Working Papers hal-04715131, HAL.
    • Handle: RePEc:hal:wpaper:hal-04715131
    Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-04715131v1
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    More about this item

    Keywords

    JEL classification: G01 G21 G28 Climate stress test ESG Bank default risk Financial stability; JEL classification: G01; G21; G28 Climate stress test; ESG; Bank default risk; Financial stability;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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