nep-ifn New Economics Papers
on International Finance
Issue of 2022‒04‒11
one paper chosen by
Vimal Balasubramaniam
University of Oxford

  1. “There is No Planet B", but for Banks “There are Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending By Emanuela Benincasa; Gazi Kabas; Steven Ongena

  1. By: Emanuela Benincasa (Swiss Finance Institute; University of Zurich - Department of Banking and Finance); Gazi Kabas (University of Zurich); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))
    Abstract: We document that lenders react to domestic climate policy stringency by increasing cross-border lending. We use granular fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with regulatory arbitrage, the positive effect decreases in borrowers’ climate policy stringency and is absent if the borrower country has a higher stringency. Furthermore, climate policy stringency decreases loan supply to domestic borrowers with high carbon risk while increasing loan supply if such borrowers are abroad. Our results suggest that crossborder lending can enable lenders to exploit the lack of global coordination in climate policies.
    Keywords: Cross-Border Lending, Climate Policy, Regulatory Arbitrage, Syndicated Loans
    JEL: G21 H73 Q58
    Date: 2022–04

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