Climate risk and bank liquidity creation: International evidence

• Published in: International review of financial analysis Vol. 82; p. 102198
• Main Authors: Lee, Chien-Chiang, Wang, Chih-Wei, Thinh, Bui Tien, Xu, Zhi-Ting
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.07.2022
• Subjects: Bank liquidity creation; Climate adaptive capability; Climate exposure; Climate sensitivity; Q54; Climate exposure; Bank liquidity creation; Climate sensitivity; G33; Climate adaptive capability
• ISSN: 1057-5219; 1873-8079
• DOI: 10.1016/j.irfa.2022.102198

This study examines the impact of climate risk on bank liquidity creation in 56 countries over the period 1995–2012. Specifically, it investigates whether the relationship between climate risk and bank liquidity creation varies by bank and country characteristics. The results reveal that climate sensitivity and exposure have negative impacts on overall liquidity creation, whereas climate adaptation has positive effects. These effects are more pronounced for larger banks with lower capital, banks located in lower-GDP and developing countries, and those in Asia. The results suggest that policymakers should exercise caution when formulating and implementing climate-related strategies, as these can influence liquidity creation, which in turn can affect macroeconomic stability. •The relationship between climate risk and bank liquidity creation varies by bank and country characteristics. .•Climate sensitivity and exposure have negative impacts on overall liquidity creation, whereas climate adaptation has positive effects.•Effects are more pronounced for larger banks with lower capital, banks located in lower-GDP and developing countries, and those in Asia.