Climate Risk Exposure and European Banking Sector: A Forward‐Looking Transition Analysis

ABSTRACT This study examines whether banks' financial vulnerability and characteristics predict their future climate‐transition risk exposure. Using the Climate Risk (CRISK) methodology of Jung et al. (2025) for 126 listed European banks over 2007–2024, it shows that financial vulnerability captured by Systemic Risk has weak power to predict climate vulnerability, while significant predictive relationships emerge among smaller, Less Significant Institutions and during financial distress. An event study of the 2022 Climate Stress Test announcement by the European Central Bank suggests a dampening effect on climate‐transition risk among Supervised banks. The evidence indicates that climate vulnerability extends beyond fragility measures.