FRB of New York Staff Report No. 1058, Rev. January 2024
81 PagesPosted: 6 Apr 2023Last revised: 5 Feb 2024
See all articles by Hyeyoon Jung
Hyeyoon Jung
Federal Reserve Bank of New York
João A. C. Santos
Federal Reserve Bank of New York; Nova School of Business and Economics
Lee Seltzer
Federal Reserve Bank of New York
Date Written: April 1, 2023
Abstract
We find that banks’ credit exposures to transition risks are modest. We build on the estimated sectoral effects of climate transition policies from general equilibrium models. Even when we consider the strictest policies or the most adverse scenarios, exposures do not exceed 14 percent of banks’ loan portfolios. We also find that commonly used carbon emissions can explain at most 60 percent of bank exposures estimated off general equilibrium models. Moreover, we find evidence of bank management of transition risk exposures. Banks that signed the Net-Zero Alliance have reduced their exposures compared to non-signatories, mainly by cutting lending to the riskiest industries.
Keywords: banks’ climate risk exposures, climate transition risks, NGFS scenarios
JEL Classification: G21, H23, Q54
Suggested Citation:Suggested Citation
Jung, Hyeyoon and Santos, João A. C. and Seltzer, Lee, U.S. Banks’ Exposures to Climate Transition Risks (April 1, 2023). FRB of New York Staff Report No. 1058, Rev. January 2024, Available at SSRN: https://ssrn.com/abstract=4411661 or http://dx.doi.org/10.2139/ssrn.4411661
Hyeyoon Jung (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
João A. C. Santos
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)
HOME PAGE: http://HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML
Nova School of Business and Economics ( email )
Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal
Lee Seltzer
Federal Reserve Bank of New York ( email )
New York, NY
United States
