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Carbon transition risk and corporate loan securitization

Isabella Mueller et al.

Journal of Financial Intermediation2025https://doi.org/10.1016/j.jfi.2025.101146article
AJG 4ABDC A*
Weight
0.52

Abstract

We examine how banks manage carbon transition risk by selling loans given to polluting borrowers to less regulated shadow banks in securitization markets. Exploiting the election of Donald Trump as an exogenous shock that reduces carbon transition risk, we find that banks engage in regulatory arbitrage and use brown loan securitization to manage their exposure to carbon transition risk. Banks are more likely to securitize brown loans when carbon transition risk is high but keep these loans on their balance sheets when the risk is reduced. In addition, securitization enables banks to offer lower interest rates to polluting borrowers but does not affect the supply of green loans. Our findings are more pronounced among banks with low levels of capitalization, domestic banks, and banks that do not display green lending preferences. We discuss how securitization can weaken the effectiveness of bank climate policies.

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https://doi.org/https://doi.org/10.1016/j.jfi.2025.101146

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@article{isabella2025,
  title        = {{Carbon transition risk and corporate loan securitization}},
  author       = {Isabella Mueller et al.},
  journal      = {Journal of Financial Intermediation},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1016/j.jfi.2025.101146},
}

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Carbon transition risk and corporate loan securitization

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Evidence weight

0.52

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

F · citation impact0.47 × 0.4 = 0.19
M · momentum0.68 × 0.15 = 0.10
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.