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Climate transition risk in the banking sector: what can prudential regulation do?

Michael Grill et al.

Macroeconomic Dynamics2026https://doi.org/10.1017/s1365100526100947article
AJG 2ABDC A
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0.50

Abstract

Climate-related transition risks are expected to escalate in the coming years, posing potentially significant threats to the banking system. This paper employs a DSGE model that incorporates heterogeneous firms and financial frictions to demonstrate the need to explicitly address climate-related risks in the prudential framework. Our findings indicate that failing to acknowledge transition risk can lead to excessive risk-taking by banks, thereby increasing the volatility of lending and output. With the introduction of climate-related prudential policies, banks are less exposed to transition risk and more efficient in allocating capital.

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https://doi.org/https://doi.org/10.1017/s1365100526100947

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@article{michael2026,
  title        = {{Climate transition risk in the banking sector: what can prudential regulation do?}},
  author       = {Michael Grill et al.},
  journal      = {Macroeconomic Dynamics},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1017/s1365100526100947},
}

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Climate transition risk in the banking sector: what can prudential regulation do?

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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