Work

U.S. Banks’ Exposures to Climate Transition Risks

Year: 2026

Type: article

Abstract: We propose a new approach to estimate banks’ credit exposures to transition risks that combines sectoral effects of climate policies from general equilibrium (GE) models with historical information on loans’ default risks. At worst, estimated exposures reach 14% of bank loan portfolio values. Accounting for historic loan payoff structures reduces exposures to 0.5%–2%. Exposures can increase by 3–5 percentage points due to aggregate economic shocks. Analyses surrounding climate transition events suggest our estimates can serve as an upper bound on banks’ transition risk exposures. Highlighting our measure’s novelty, emissions explain at most 60% of variation in banks’ exposures.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109026103226

Authors: Hyeyoon Jung, Joao A. C. Santos, Lee Seltzer

Institutions: Federal Reserve Bank of New York, NOVA School of Business and Economics

Language: English

Topic: Sustainable Finance and Green Bonds

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: green

OpenAlex ID: W4362724946

FWCI: 14.84

Cites: 31

Cited by: 32

Related to: 10