U.S. Banks’ Exposures to Climate Transition Risks (2024)

Table of Contents

Hyeyoon Jung João A. C. Santos Lee Seltzer Abstract Hyeyoon Jung (Contact Author) João A. C. Santos Lee Seltzer

FRB of New York Staff Report No. 1058, Rev. January 2024

81 PagesPosted: 6 Apr 2023Last revised: 5 Feb 2024

João A. C. Santos

Federal Reserve Bank of New York; Nova School of Business and Economics

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

U.S. Banks’ Exposures to Climate Transition Risks (2024)

Hyeyoon Jung

João A. C. Santos

Lee Seltzer

Abstract

Hyeyoon Jung (Contact Author)

Federal Reserve Bank of New York ( email )

João A. C. Santos

Federal Reserve Bank of New York ( email )

Nova School of Business and Economics ( email )

Lee Seltzer

Federal Reserve Bank of New York ( email )