Discussion Paper Details

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Title: Too-big-to-strand? Bond versus bank financing in the transition to a low-carbon economy.

Author(s): Winta Beyene, Kathrin De Greiff, Manthos Delis and Steven Ongena

Publication Date: November 2021

Keyword(s): Climate policy risk, Credit misallocation, Financial Intermediation and Stranded assets

Programme Area(s): Financial Economics

Abstract: What is the role market- and bank-based debt play in the climate transition process? We present evidence that bond markets price the risk that assets held by fossil fuel firms strand, while banks in the syndicated loan market seemingly do not price this risk much. Consequently, to fulfill their financing needs fossil fuel firms increasingly rely less on bonds and more on loans. We can interpret the within-firm bond-to-loan substitution along stranding risk as a contraction in the supply of bond versus bank funding. Within the banking sector especially the big banks are willing to provide cheaper and more financing to fossil fuel firms.

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Bibliographic Reference

Beyene, W, De Greiff, K, Delis, M and Ongena, S. 2021. 'Too-big-to-strand? Bond versus bank financing in the transition to a low-carbon economy.'. London, Centre for Economic Policy Research.