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Working Paper
Banking on Deforestation: The Cost of Nonenforcement
Despite surging environmental laws, how their enforcement influences banks’ management of climate risks remains underexplored. Using the Brazilian Amazon as a laboratory, we examine the impact of a shock to environmental law enforcement capacity on bank management of risks arising from deforestation — a significant but understudied climate risk. After enforcement declined, Brazilian banks significantly altered their priorities to more short-term profitability over longer-term risk concerns. Banks greatly increased lending to agribusinesses engaged in deforestation and actively shifted ...
Briefing
How Concentrated Is the Distribution of Banks' Reserve Balances?
Reserve balances play a critical role in the banking system. Prior to 2020, they satisfied reserve requirements, and they now also serve as the primary payment instrument for settling transactions and client orders via the Fedwire system. Maintaining adequate reserve balances allows banks to meet withdrawal demands and instills depositor confidence, reducing the risk of bank runs. Empirical studies have demonstrated that banks' holding of reserve balances affects the provision of bank credit to firms and households, although the relationship depends on types of credit and methods of reserves ...