Discussion Paper

How Exposed Are U.S. Banks’ Loan Portfolios to Climate Transition Risks?

Abstract: Much of the work on climate risk has focused on the physical effects of climate change, with less attention devoted to “transition risks” related to negative economic effects of enacting climate-related policies and phasing out high-emitting technologies. Further, most of the work in this area has measured transition risks using backward-looking metrics, such as carbon emissions, which does not allow us to compare how different policy options will affect the economy. In a recent Staff Report, we capitalize on a new measure to study the extent to which banks’ loan portfolios are exposed to specific climate transition policies. The results show that while banks’ exposures are meaningful, they are manageable.

Keywords: risk exposures; climate risk; banks; Network for Greening the Financial System (NGFS) scenarios;

JEL Classification: G2;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2023-07-10

Number: 20230710

Note: Editor’s note: Since this post was first published, the y-axis labels in the first four charts have been corrected. July 10, 12:30 p.m.