Information on Hot Stuff: Do Lenders Pay Attention To Climate Risk?

61 Pages Posted: 28 Nov 2021 Last revised: 6 Nov 2023

See all articles by Emdad Islam

Emdad Islam

Monash University

Mandeep Singh

The University of Sydney - Discipline of Finance; Imperial College Business School

Date Written: September 7, 2022

Abstract

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

Islam, Emdad and Singh, Mandeep, Information on Hot Stuff: Do Lenders Pay Attention To Climate Risk? (September 7, 2022). Available at SSRN: https://ssrn.com/abstract=3971621 or http://dx.doi.org/10.2139/ssrn.3971621

Emdad Islam

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Mandeep Singh (Contact Author)

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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