Too-Big-To-Strand? Bond Versus Bank Financing in the Transition to a Low-Carbon Economy

71 Pages Posted: 9 Nov 2021

See all articles by Winta Beyene

Winta Beyene

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Kathrin De Greiff

Swiss Finance Institute

Manthos D. Delis

Audencia Business School

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Date Written: November 1, 2021

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.

Keywords: Climate policy risk, Credit misallocation, Financial Intermediation, Stranded assets

Suggested Citation

Beyene, Winta and De Greiff, Kathrin and Delis, Manthos D. and Ongena, Steven R. G., Too-Big-To-Strand? Bond Versus Bank Financing in the Transition to a Low-Carbon Economy (November 1, 2021). CEPR Discussion Paper No. DP16692, Available at SSRN: https://ssrn.com/abstract=3960296

Winta Beyene (Contact Author)

University of Zurich - Department of Banking and Finance

Plattenstr 14
Z├╝rich, 8032
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Kathrin De Greiff

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Manthos D. Delis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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