Climate Risk, Bank Lending and Monetary Policy

Seminar summary

Combining euro-area credit register and carbon emission data, we provide evidence of a climate risk-taking channel in banks' lending policies. Banks charge higher interest rates to firms featuring greater carbon emissions, and lower rates to firms committing to lower emissions, controlling for their probability of default. Both effects are larger for banks committed to decarbonization. Consistently with the risk-taking channel of monetary policy, tighter policy induces banks to increase both credit risk premia and carbon emission premia, and reduce lending to high emission firms more than to low emission ones. While restrictive monetary policy increases the cost of credit and reduces lending to all firms, its contractionary effect is milder for firms with low emissions and those that commit to decarbonization.

How to attend this seminar

This seminar will take place in EBS.2.1, Colchester campus at 2pm on Tuesday 23 April 2024.

Please direct any questions to Dr Anna Sarkisyan.

Speaker bio

Professor Marco Pagano

Professor Marco Pagano holds a B.A. in Economics from Cambridge University and a Ph.D. in Economics from MIT. He taught at Bocconi University and Imperial College before becoming a Professor of Finance in Naples. From 1997 to 2005, he directed the Research Programme in Financial Economics of the Centre for Economic Policy Research (CEPR). From 2004 to 2011 he was managing editor of the Review of Finance with Josef Zechner. From 2011 to 2019 he chaired the Einaudi institute for Economics and Finance (EIEF) and the Advisory Scientific Committee of the European Systemic Risk Board (ESRB). Until April 2022 he directed the Centre for Studies in Economics and Finance (CSEF). From 2011 to 2017 his research was funded by an ERC Advanced Grant for a project on Finance and Labor. Currently, Professor Pagano coordinates the Naples Ph.D. in Economics and chairs the Scientific Council of the Swiss Finance Institute (SFI) and of Unicredit Foundation. His work has appeared in the American Economic Review, Review of Economic Studies, Quarterly Journal of Economics, Journal of Finance, Review of Financial Studies, Journal of Financial Economics, Review of Finance, RAND Journal of Economics, Journal of the European Economic Association, Economic Policy, and several other journals. In 2023, Oxford University Press published the second edition of his book Market Liquidity: Theory, Evidence, and Policy, joint with Thierry Foucault and Ailsa Roëll.