Research into the mechanism for the impact of climate change on systemic risk—a case study of Chinaʹs small‐ and medium‐sized commercial banks

Abstract

Climate change is one of the gravest threats facing human society today, as well as an important factor for financial stability. This study takes 11 small‐ and medium‐sized listed banks as subjects, measures the banksʹ systemic risk using the CoVaR model and climate change using daily average temperature, and explores the mechanism between these two factors. Additionally, it investigates the influence of climate change on systemic risk in commercial banks through intermediary variables (e.g., commercial banksʹ loan‐deposit ratio, NPL ratio, and net interest margin). The results are as follows: (1) There is a positive correlation between climate change and systemic risk in banks within the confidence interval. (2)The indirect effect of climate change on systemic risk in banks through the NPL ratio is significantly positive, meaning that climate warming increases the NPL ratio and therefore increases the banksʹ systemic risk.