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Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans


Delis, Manthos; De Greiff, Kathrin; Ongena, Steven (2018). Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans. SFI Research Paper 8-10, University of Zurich.

Abstract

Does neglecting the possibility that fossil fuel reserves become “stranded” result in a "carbon bubble", i.e., an overvaluation of fossil fuel firms? To address this question, we study whether banks price the climate policy risk. We hand collect global data on corporate fossil fuel reserves, match it with syndicated loans, and subsequently compare the loan rate charged to fossil fuel firms-along their climate policy exposure-to non-fossil fuel firms. We find that before 2015 banks did not price climate policy risk. After 2015, however, the risk is priced, especially for firms holding more fossil fuel reserves. We also provide some evidence that "green banks" charge marginally higher loan rates to fossil fuel firms.

Abstract

Does neglecting the possibility that fossil fuel reserves become “stranded” result in a "carbon bubble", i.e., an overvaluation of fossil fuel firms? To address this question, we study whether banks price the climate policy risk. We hand collect global data on corporate fossil fuel reserves, match it with syndicated loans, and subsequently compare the loan rate charged to fossil fuel firms-along their climate policy exposure-to non-fossil fuel firms. We find that before 2015 banks did not price climate policy risk. After 2015, however, the risk is priced, especially for firms holding more fossil fuel reserves. We also provide some evidence that "green banks" charge marginally higher loan rates to fossil fuel firms.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:8 May 2018
Deposited On:12 Sep 2018 13:58
Last Modified:24 Sep 2019 23:36
Series Name:SFI Research Paper
OA Status:Green
Free access at:Official URL. An embargo period may apply.
Official URL:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3125017
Other Identification Number:merlin-id:16741

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