Work

Geographic diversification, climate risk, and bank lending: Evidence from farm loans

Year: 2025

Type: article

Abstract: This study examines how geographically diversified banks adjust lending practices in response to abnormal hot temperatures, a proxy for climate risk, and finds that these banks reduce small farm lending by 2–3 percent more than geographically constrained banks after a standard deviation increase in abnormal temperatures. Geographically diversified banks demonstrate proactive portfolio risk management by prioritizing credit in core markets and reallocating funds away from high-risk non-core regions, leaving lending gaps in affected counties. These findings highlight the importance of geographic diversification in building climate resiliency for banks while reducing the total credit available to farmers in a region.

Source: Journal of Financial Intermediation

DOI: 10.1016/j.jfi.2025.101152

Authors: Emdad Islam, Mandeep Singh

Institutions: Monash University, The University of Sydney, Imperial College London

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: hybrid

Estimated APC paid: $3,960