Citation

Discussion Paper Details

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Title: "There is No Planet B", but for Banks There are "Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending

Author(s): Emanuela Benincasa, Gazi Kabas and Steven Ongena

Publication Date: October 2021

Keyword(s): Climate Policy, Cross-border lending, regulatory arbitrage and syndicated loans

Programme Area(s): Financial Economics

Abstract: We document that lenders react to domestic climate policy stringency by increasing cross-border lending. We use loan fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with regulatory arbitrage, the positive effect decreases in borrowers' climate policy stringency and is absent if the borrower country has a higher stringency. Furthermore, climate policy stringency decreases loan supply to domestic borrowers with high carbon risk while increasing loan supply if such borrowers are abroad. Our results suggest that cross-border lending enables lenders to exploit the lack of global coordination in climate policies.

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Bibliographic Reference

Benincasa, E, Kabas, G and Ongena, S. 2021. '"There is No Planet B", but for Banks There are "Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16665