Climate shocks are no longer rare disasters—they are recurring forces that shape economic activity. This project measures how major climate oscillations such as El Niño and the North Atlantic Oscillation affect bank solvency, risk-taking, and financial resilience across the United States and Europe.

By exploiting the quasi-random nature of climate oscillations, we identify their causal impact on bank stability. Using granular bank-level data over several decades, we quantify how insolvency risk, default probabilities, and financial fragility respond to climate-driven disruptions.

Understanding whether climate shocks merely disturb banks—or genuinely destabilize the financial system—is crucial. If repeated weather anomalies systematically weaken balance sheets, climate variability becomes a core financial stability issue, not just an environmental concern.

Climate shocks do not hit banks directly—they affect borrowers, regions, and sectors first. We investigate how temperature and precipitation anomalies translate into credit risk, profitability losses, and rising financial vulnerabilities within banks.

By combining geolocated branch data with high-resolution climate teleconnections, we measure each bank’s local exposure to climate variability. This allows us to trace how droughts, floods, and storms propagate through loan portfolios and balance sheets.

Identifying transmission channels is essential for regulation. Do shocks primarily increase non-performing loans? Reduce profitability? Expose weaknesses in capital buffers? Pinpointing these mechanisms helps regulators design targeted, climate-informed prudential policies.

Today’s climate variability is only a baseline. As global temperatures rise, major climate oscillations are expected to intensify. We project how different climate scenarios—ranging from low to high emissions—could reshape banking stability by 2050, 2075, and 2100.

Combining state-of-the-art climate models with empirical banking estimates, we simulate how more frequent and stronger shocks would affect insolvency risk, financial fragility, and systemic vulnerabilities under alternative warming pathways.

These projections provide forward-looking risk assessments for policymakers. They quantify not only expected financial impacts but also uncertainty across models and scenarios—offering a scientific foundation for climate stress testing and macroprudential supervision in a warming world.