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Davor Djekic
- 6 May 2026
- WORKING PAPER SERIES - No. 3224Details
- Abstract
- We study how physical climate risk shapes bank lending activity and credit quality by combining high-resolution Copernicus flood geospatial maps with loan-level AnaCredit data. We exploit four major European floods (2021–2024) in a spatial regression discontinuity design comparing firms located just inside versus just outside flood boundaries (within 300–500 meters). We find that immediately after floods there is an increase by about 3.5 to 5% in lending, driven by liquidity demand, followed by a contraction of similar magnitude in the subsequent quarter. Interest rates follow a similar pattern, while default rates rise persistently by around 0.7 percentage points. Exploiting multiple lending relationships and firm–time fixed effects, we show that demand factors dominate: banks with greater exposure to affected firms do not systematically tighten credit supply. Nonetheless, relationship banks extend roughly 10 percentage points more credit to affected firms while imposing tighter collateral requirements, consistent with risk-sharing rather than unconditional support. Sectoral composition and pre-existing firm risk are the primary axes of heterogeneity in the immediate response. The findings shed light on how physical climate shocks propagate through credit markets and inform financial stability analysis.
- JEL Code
- Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
C21 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Cross-Sectional Models, Spatial Models, Treatment Effect Models, Quantile Regressions
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 19 November 2025
- MACROPRUDENTIAL BULLETIN - ARTICLE - No. 32Details
- Abstract
- As authorities across the euro area work towards including climate risks into regular stress-testing frameworks, this article offers a starting point for assessing bank resilience to climate risks that materialise under a short-term horizon. This is relevant since acute physical risks and abrupt policy changes can also materialise at short notice and affect the balance sheet of financial institutions. The analysis uses an adverse macroeconomic backdrop that combines the EBA’s adverse scenario with the Network for Greening the Financial System’s Nationally Determined Contributions (NGFS NDCs) scenarios. It extends the EU-wide 2025 stress test results by incorporating both transition and acute physical climate risks into the credit risk assessment for non-financial corporations by means of top-down models. Transition risks driven by green investments to reduce emissions amplify credit losses and reduce banks’ CET1 capital, particularly in high energy-intensive sectors. Similarly, acute physical risks such as extreme flood events reduce CET1 capital through direct damage, local disruptions and macroeconomic spillovers. While the magnitude of impacts varies across banks, the analysis shows that both types of climate risk can have a moderate but consequential effect on capital ratios. Notably, the banks most exposed to climate-related losses may differ from those identified as the most vulnerable in the broader EU-wide assessment. These findings underscore the importance of incorporating both types of climate risk into regular financial stability assessments.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation