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Working Paper
How Climate Change Shapes Bank Lending: Evidence from Portfolio Reallocation
Meisenzahl, Ralf R. (2023-03-30)
I document how bank lending has changed in response to climate change by analyzing changes in bank loan portfolios since 2012. Using supervisory data providing loan-level portfolios of the largest U.S. banks, I find that banks significantly reduced lending to areas more impacted by climate change starting around 2015. Using flood risk and wildfire risk as proxies for climate risk, I estimate a one standard deviation increase in climate risk reduces county-level balances in banks’ portfolios by up to 4.7 percent between 2014 and 2020 in counties with large loan balances. The aggregate trend ...
Working Paper Series , Paper WP 2023-12

Working Paper
Industrial Composition of Syndicated Loans and Banks’ Climate Commitments
Hale, Galina; Meisenbacher, Brigid C.; Nechio, Fernanda (2024-07-30)
In the past two decades, a number of banks joined global initiatives aimed to mitigate climate change by “greening” their asset portfolios. We study whether banks that made such commitments have a different emission exposure of their portfolios of syndicated loans than banks that did not. We rely on loan-level information with global coverage combined with country-industry information on emissions. We find that all banks have reduced their loan-emission exposures over the last 8 years. However, we do not find differences between banks that did and those that did not signal their ...
Working Paper Series , Paper 2024-23

Working Paper
Insurance, Weather, and Financial Stability
Kahn, Charles M.; Panjwani, Ahyan; Santos, João A. C. (2024-08-16)
In this paper, we introduce a model to study the interaction between insurance and banking. We build on the Federal Crop Insurance Act of 1980, which significantly expanded and restructured the decades-old federal crop insurance program and adverse weather shocks—over-exposure of crops to heat and acute weather events—to investigate some insights from our model. Banks increased lending to the agricultural sector in counties with higher insurance coverage after 1980, even when affected by adverse weather shocks. Further, while they increased risky lending, they were sufficiently ...
Finance and Economics Discussion Series , Paper 2024-067

Working Paper
Domestic Lending and the Pandemic: How Does Banks' Exposure to Covid-19 Abroad Affect Their Lending in the United States?
Temesvary, Judit; Wei, Andrew (2021-11-17)
Shortly after the onset of the pandemic, U.S. banks cut their term lending to businesses–but little is known about how much, and why, banks' choice to ration credit contributed to this contraction. Afforded by a unique combination of several highly granular bank regulatory datasets, we identify the role of banks' exposure to Covid-related restrictions abroad – a balance sheet "shock" that affects only banks' credit supply, but not their US borrowers' demand for loans. We find that US banks with higher foreign Covid exposure cut their lending to US firms, and tightened terms on such loans, ...
Finance and Economics Discussion Series , Paper 2021-056r1

Journal Article
Do Banks Lend to Distressed Firms?
Sanchez, Juan M.; Paul, Pascal; Faria-e-Castro, Miguel (2023-11-27)
Concerns emerged during the COVID-19 pandemic over banks continuing to lend to unproductive businesses that were close to default. Recent research shows that lenders have incentives to offer relatively better terms to less-productive and more-indebted firms to recover their prior investments. U.S. loan-level data confirm the empirical relevance of such lending behavior. A rich model of firms and banks further emphasizes that this type of lending can also depress overall productivity by sustaining firms that should otherwise exit the economy.
FRBSF Economic Letter , Volume 2023 , Issue 31 , Pages 5

Working Paper
Why Does the Yield Curve Predict GDP Growth? The Role of Banks
Minoiu, Camelia; Schneider, Andrés; Wei, Min (2023-07-10)
We provide evidence on the effect of the slope of the yield curve on economic activity through bank lending. Using detailed data on banks’ lending activities coupled with term premium shocks identified using high-frequency event study or instrumental variables, we show that a steeper yield curve associated with higher term premiums (rather than higher expected short rates) boosts bank profits and the supply of bank loans. Intuitively, a higher term premium represents greater expected profits on maturity transformation, which is at the core of banks’ business model, and therefore ...
Finance and Economics Discussion Series , Paper 2023-049

Report
Do Mortgage Lenders Respond to Flood Risk?
Blickle, Kristian S.; Perry, Evan; Santos, João A. C. (2024-05-01)
Using unique nationwide property-level mortgage, flood risk, and flood map data, we analyze whether lenders respond to flood risk that is not captured in FEMA flood maps. We find that lenders are less willing to originate mortgages and charge higher rates for lower LTV loans that face “un-mapped” flood risk. This effect is weaker for high income applicants, as well as non-banks and small local banks. However, we find evidence that non-banks and local banks are more likely to securitize/sell mortgages to borrowers prone to flood risk. Taken together, our results are indicative that ...
Staff Reports , Paper 1101

Working Paper
Persistent Effects of the Paycheck Protection Program and the PPPLF on Small Business Lending
Dufresne, Lora; Spiegel, Mark M. (2024-08-07)
Using bank-level U.S. Call Report data, we examine the longer-term effects of the Paycheck Protection Program (PPP) and the PPP Liquidity Facility on small business (SME) lending. Our sample runs through the end of 2023H1, by which time almost all PPP loans were forgiven or repaid. To identify a causal impact of program participation, we instrument based on historical bank relationships with the Small Business Administration and the Federal Reserve discount window prior to the onset of the pandemic. Elevated bank participation in both programs was positively associated with a substantial ...
Working Paper Series , Paper 2024-26

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