LSIs' exposures to climate change related risks: An approach to assess physical risks

Arbeitspapier

This paper proposes an approach to estimate the impact of adverse climatic events on the profitability of small European banks (LSIs). By considering river ooding phenomena, we construct a unique database matching the information on location, frequency and severity of oods with the location and balance sheet data of institutions mainly operating in the areas where they are headquartered (territorial LSIs). We compare the performance of territorial LSIs across regions at low and high ooding risk and test for the \core lending channel" hypothesis, whereby lending to the real economy is a catalyst of physical risks. Results show that an adverse event dropping loans to households and non-financial corporations by one percentage point (pp) of total assets entails a decrease in the Return on Assets (ROA) of territorial LSIs in riskier areas by 0.01pps (~3.1%). Moreover, if all territorial LSIs were located in riskier areas, one bank out of two would report an average ROA between 0.0001 and 0.52 percentage points lower than what observed.

Object Details

• ISBN: 978-92-899-4517-2
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2517

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Climate; Natural Disasters and Their Management; Global Warming
• Subject: Climate change ; LSIs ; Protability ; Dynamic panel regressions ; Core Lending

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pagliari, Maria Sole
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2021

Further information

• DOI: doi:10.2866/98616
• Handle: http://hdl.handle.net/10419/229131
• Last update: 10.03.2025, 11:42 AM CET