Does heat stress deteriorate the quality of banks’ loan portfolios? Evidence from U.S. community banks
Abstract
Climate change affects the stability of the banking sector through physical risks and it poses a special threat to the performance of banks whose business is concentrated in the economy surrounding their headquarters. Among physical risks, heat stress stands out as the largest contributor to economic losses. We empirically examine non-performing loans from U.S. community banks between 2002 and 2021 and reveal a deterioration in the overall credit quality of institutions in heat-exposed regions. The results are relevant for banks and regulators, as they reveal exogenous locational disadvantages that could threaten exposed banks’ existence
in the near future.
Keywords
Climate change, Physical risks, Bank loan quality
Cite as
Vollmar, S., & Wening, F. (2024). Does heat stress deteriorate the quality of banks’ loan portfolios? Evidence from U.S. community banks. Finance Research Letters, 69.Details
Publication type
Research article (journal)
Peer reviewed
Yes
Publication status
Published
Year
2024
Journal
Finance Research Letters
Volume
69
Language
English
ISSN
1544-6123
DOI
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