Information on Hot Stuff: Do Lenders Pay Attention To Climate Risk?
57 Pages Posted: 28 Nov 2021 Last revised: 7 Sep 2023
Date Written: September 7, 2022
This study shows that banks adapt to exacerbated climate risk pre-emptively by factoring market-level information into lending decisions. Geographically dispersed, multi-state, and larger banks reduce small farm lending by 2 to 3 percent more, relative to their counterparts, following a standard deviation increase in the frequency of abnormal hot temperature in a county. Banks do not reduce credit flows indiscriminately as they strategically shield markets with branch presence. Furthermore, within-bank analyses suggest significant rebalancing of farm loans across counties that differ in climate risk exposure.
Keywords: Small Farm Loans, Abnormal Temperature, Market-Level Information, Branch Network, Climate Adaptation.
JEL Classification: G21, Q14, Q54
Suggested Citation: Suggested Citation