Flooded credit markets: physical climate risk and small business lending
JRC Working Papers in Economics and Finance, 2023/14
We document that European banks charge higher interest rates on loans granted to firms in areas at high risk of flooding. At 6 basis points, the average risk premium is rather small, and does not adequately reflect the deterioration of loan performance in the aftermath of flood episodes, however. Firms in flooded counties are more likely to default on their loans than non-disaster firms. Floods reduce securitised credit in the local markets, suggesting that physical risks associated with climate change are borne within the banking sector.
BARBAGLIA Luca;
FATICA Serena;
RHO Caterina;
2023-12-11
European Commission
JRC136274
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