Boiling Banks - How Heat Harms Bank Performance

47 Pages Posted: 29 May 2024

See all articles by Steffen Vollmar

Steffen Vollmar

University of Münster

Fabian Wening

University of Münster - Faculty of Economics

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Abstract

In the face of rising temperatures and increasingly extreme weather events, we examine how heat affects commercial bank performance. We exploit an institutional setting in Germany, which limits the operations of small and medium-sized banks geographically, to identify the regional effect of high temperatures. Our results are based on daily and hourly weather station observations and show that heat significantly reduces the profitability of regional banks. Further analyses taking into account the composition of the local economy suggest that the decline in performance is caused by the reduced productivity of bank clients. The results propose that physical climate risks threaten the business model of local banks, endangering financial stability at large.

Keywords: Heat Stress, Climate Finance, Commercial Banking, Bank Performance

Suggested Citation

Vollmar, Steffen and Wening, Fabian, Boiling Banks - How Heat Harms Bank Performance. Available at SSRN: https://ssrn.com/abstract=4846868 or http://dx.doi.org/10.2139/ssrn.4846868

Steffen Vollmar (Contact Author)

University of Münster ( email )

Schlossplatz 2
Muenster, D-48149
Germany

Fabian Wening

University of Münster - Faculty of Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

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