Climate Risk and Regional Financial Stability: Evidence from China

Abstract

This paper investigates the impact of climate risk on regional financial stability in China. The findings reveal that both physical risk and transition risk of climate significantly reduce regional financial stability. These risks primarily concentrate and spread between the corporate and financial sectors and exhibit heterogeneity across different geographical regions, levels of economic development, and external climate policies. The analysis also indicates that climate risks affect regional financial stability through the collateral channel and the stranded assets channel.

Keywords: Climate Risk, Financial stability, Low-carbon transition