"There is no Planet B", but for banks "There are countries B to Z": Domestic climate policy and cross-border lending

Abstract

We document that banks react to domestic climate policy stringency by increasing cross-border lending. We use loan fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with a race to the bottom, the positive effect increases as the borrower country becomes less stringent and is absent if the borrower country is more stringent. Furthermore, climate policy stringency decreases loan supply to domestic borrowers with high carbon risk while increasing loan supply to high-risk borrowers abroad. Our results suggest that cross-border lending enables lenders to exploit the lack of global coordination in climate policies.

Presenter

Emanuela Benincasa is a PhD candidate in Finance at the Swiss Finance Institute, University of Zurich. Her research interests encompass banking, corporate finance, and climate finance. Emanuela has held temporary research consultancy positions at the European Investment Bank (EIB) and the United Nations Office for Disaster Risk Reduction (UNDRR). She earned her Bachelor's degree in Economics from the University of Siena and completed her Master's degree in Finance from the University of Siena and the School of Economics and Business at the University of Ljubljana.