Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297350 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2910
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Climate-related risks are due to increase in coming years and can pose serious threats to financial stability. This paper, by means of a DSGE model including heterogeneous firms and banks, financial frictions and prudential regulation, first shows the need of climate-related capital requirements in the existing prudential framework. Indeed, we find that without specific climate prudential policies, transition risk can generate excessive risk-taking by banks, which in turn increases the volatility of lending and output. We further show that relying on microprudential regulation alone would not be enough to account for the systemic dimension of transition risk. Implementing macroprudential policies in addition to microprudential regulation, leads to a Pareto improvement.
Subjects: 
transition risk
financial frictions
prudential regulation
JEL: 
D58
E58
E61
Q54
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6390-9
Document Type: 
Working Paper

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