Journal of Financial Intermediation, July 2024 (FRBNY Staff Report #1000)
Journal of Financial Economics R&R
INFORMS Annual Meeting^, Annual Bank Conference in Development Economics^, Bank of Spain/IE Business School/St. Louis Fed Current Issues in Economics and Finance, UNPRI Academic Network Conference 2019*, AFA 2021, Conference on Financial Market Regulation 2021*, ESSEC-Amundi Chair Webinar
Investor and policymaker concerns about climate risks suggest these risks should affect the risk assessment and pricing of corporate securities, particularly for firms facing stricter regulatory enforcement. Using corporate bonds, we find support for this hypothesis. Employing a shock to expected climate regulations, we show climate regulatory risks causally affect bond credit ratings and spreads. A structural credit model indicates the increased spreads for high carbon issuers, especially those located in stricter regulatory environments, are driven by changes in firms’ asset volatilities rather than asset values, highlighting that regulatory uncertainty affects security pricing. The results have important implications for policy-making.
Banca d'Italia Conference *, Addressing Climate Change Data Needs: The Global Debate and Central Banks’ Contribution, IBEFA-ASSA 2024*, NY Fed/Columbia Environmental Economics and Policy Conference, Stanford Institute for Theoretical Economics (SITE) 2023*, IFABS Oxford 2023, OCC Emerging Risks in the Banking System, Fed System Climate Meeting *, EFA Annual Meeting
We find that banks’ credit exposures to transition risks are modest. We build on the estimated sectoral effects of climate transition policies from general equilibrium models. Even when we consider the strictest policies or the most adverse scenarios, exposures do not exceed 14 percent of banks’ loan portfolios. We also find that commonly used carbon emissions can explain at most 60 percent of bank exposures estimated off general equilibrium models. Moreover, we find evidence of bank management of transition risk exposures. Banks that signed the Net-Zero Alliance have reduced their exposures compared to non-signatories, mainly by cutting lending to the riskiest industries.
Fed System Regional Meeting^, Fed System Energy Meeting^
Empirical research in climate economics often relies on panel regressions of different outcomes on disaster damages. Interpreting these regressions requires an assumption that error terms are uncorrelated across counties and time, which climate science research suggests is unlikely to hold. We introduce a methodology to identify spatial and temporal clusters in natural disaster damages datasets, and show that accounting for clustering affects observed economic effects of disasters. Specifically, counties tend to experience 0.45% more disaster damage for every 1% increase in damage across other intra-cluster counties. Moreover, accounting for clustering makes some hazard types, such as droughts, appear more damaging.
Fed System Equitable Growth Meeting*, WEAI 2024*, Fed System Regional Meeting, 2024 CEAR-RSI, 2025 ASSA-AREUEA Annual Meeting, 2025 MFA^
Is Your Apartment Breaking Because Your Landlord is Broke?
New York Fed Liberty Street Economics
How Exposed Are U.S. Banks’ Loan Portfolios to Climate Transition Risks? (with Hyeyoon Jung and Joao Santos)
New York Fed Liberty Street Economics
Flood Risk and Firm Location Decisions in the Fed’s Second District (with Oliver Zain Hannaoui, Hyeyoon Jung and Joao Santos)
New York Fed Liberty Street Economics
What Is Natural Disaster Clustering—and Why Does It Matter for the Economy? (with Jacob Kim-Sherman)
New York Fed Liberty Street Economics
*indicates presented by coauthor
^indicates scheduled