Chicago Fed, Report: How Climate Change Shapes Bank Lending, Evidence from Portfolio Reallocation

“We document that banks have started to shift their portfolios away from areas with high climate risk starting after the 2014 UN Climate Summit. This shift is driven by a relative reduction in lending to the borrowers more vulnerable to climate shocks. These findings suggest that banks are concerned about potential losses from more frequent extreme weather events and manage this risk accordingly, limiting the financial stability concern of climate change originating in the regulated banking sector. Blickle and Santos (2022) provides some evidence that an increase in flood risk increases mortgage securitization. Further research should therefore assess whether nonbank lenders substitute for the reduction in bank credit and hence have an increased exposure to climate risks that could threaten financial stability.”