Climate Risk, Bank Lending and Monetary Policy

About the seminar

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 decarbonisation. Consistent 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 decarbonisation.

Speaker bio

Polo is an Associate Professor of Finance at LUISS and a Research Affiliate at the Einaudi Institute for Economics and Finance. Before joining LUISS, he was an Associate Professor of Finance at Universitat Pompeu Fabra and an Associate Research Professor at the Barcelona School of Economics. He is also a Research Affiliate in Financial Economics at the Centre for Economic Policy Research and a Research Member of the European Corporate Governance Institute and an Associate Editor of the Economic Journal. In the past, he has been an Academic Fellow at the Rock Center for Corporate Governance at Stanford University. He holds a master’s from the University of Cambridge and a PhD from the University of Oxford. His research has appeared in leading finance journals, including The Journal of Finance, The Review of Financial Studies and The Journal of Financial Economics.

Register

No registration required. For any queries about the seminar, please contact Bet Brooke.