Climate risk and bank stability: Evidence from emerging countries

This study examines the impact of climate risks on banking stability across international emerging countries using a dataset of 1,857 bank-year observations from 18 countries.The Global Climate Risk Index (CRI) developed by Germanwatch is used to quantify economic damage and fatalities from extreme weather events while bank Z-score is employed to measure bank stability.Using fixed-effect and feasible generalized least squared (FGLS) regressions, we find that increased climate risk generally diminishes bank stability.We also find that GDP growth and inflation positively influence stability.Conversely, factors like bank size have a negative impact on stability.These findings suggest a proactive approach from policymakers and financial institutions to mitigate the detrimental impact of climate risks on banking stability.