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Working Paper
Climate Risks in the U.S. Banking Sector: Evidence from Operational Losses and Extreme Storms
Berger, Allen N.; Curti, Filippo; Lazaryan, Nika; Mihov, Atanas; Roman, Raluca A. (2023-12-19)
Using supervisory data from large U.S. bank holding companies (BHCs), we document that BHCs suffer more operational losses during episodes of extreme storms. Among different operational loss types, losses due to external fraud, BHCs’ failure to meet obligations to clients and faulty business practices, damage to physical assets, and business disruption drive this relation. Event study estimations corroborate our baseline findings. We further show that BHCs with past exposure to extreme storms reduce operational losses from future exposure to storms. Overall, our findings provide new ...
Working Papers , Paper 21-31

Report
Do Mortgage Lenders Respond to Flood Risk?
Blickle, Kristian S.; Perry, Evan; Santos, João A. C. (2024-05-01)
Using unique nationwide property-level mortgage, flood risk, and flood map data, we analyze whether lenders respond to flood risk that is not captured in FEMA flood maps. We find that lenders are less willing to originate mortgages and charge higher rates for lower LTV loans that face “un-mapped” flood risk. This effect is weaker for high income applicants, as well as non-banks and small local banks. However, we find evidence that non-banks and local banks are more likely to securitize/sell mortgages to borrowers prone to flood risk. Taken together, our results are indicative that ...
Staff Reports , Paper 1101

Working Paper
The Effect of U.S. Climate Policy on Financial Markets: An Event Study of the Inflation Reduction Act
Bauer, Michael D.; Offner, Eric; Rudebusch, Glenn D. (2023-09-29)
The Inflation Reduction Act of 2022 (IRA) represents the largest climate policy action ever undertaken in the United States. Its legislative path was marked by two abrupt shifts as the likelihood of climate policy action fell to near zero and then rose to near certainty. We investigate equity price reactions to these two events, which represent major realizations of climate policy transition risk. Our results highlight the heterogeneous nature of climate policy risk exposure. We find sizable reactions that differ by industry as well as across firm-level measures of greenness such as ...
Working Paper Series , Paper 2023-30

Report
800,000 Years of Climate Risk
Adrian, Tobias; Boyarchenko, Nina; Giannone, Domenico; Prasad, Ananthakrishnan; Seneviratne, Dulani; Xiao, Yanzhe (2022-09-01)
We use a long history of global temperature and atmospheric carbon dioxide (CO2) concentration to estimate the conditional joint evolution of temperature and CO2 at a millennial frequency. We document three basic facts. First, the temperature–CO2 dynamics are non-linear, so that large deviations in either temperature or CO2 concentrations take a long time to correct–on the scale of multiple millennia. Second, the joint dynamics of temperature and CO2 concentrations exhibit multimodality around historical turning points in temperature and concentration cycles, so that prior to the start of ...
Staff Reports , Paper 1031

Working Paper
The Rising Cost of Climate Change: Evidence from the Bond Market
Rudebusch, Glenn D.; Bauer, Michael D. (2020-07-07)
The level of the social discount rate (SDR) is a crucial factor for evaluating the costs ofclimate change. We demonstrate that the equilibrium or steady-state real interest rate isthe fundamental anchor for market-based SDRs. Much recent research has pointed to adecrease in the equilibrium real interest rate since the 1990s. Using new estimates of thisdecline, we document a pronounced downward shift in the entire term structure of SDRsin recent decades. This lower new normal for interest rates and SDRs has substantiallyboosted the estimated economic loss from climate change and the social ...
Working Paper Series , Paper 2020-25

Working Paper
Effects of Wildfire Destruction on Migration, Consumer Credit, and Financial Distress
McConnell, Kathryn; Fussell, Elizabeth; DeWaard, Jack; Whitaker, Stephan; Curtis, Katherine; Price, Kobie; St. Denis, Lise; Balch, Jennifer (2021-12-27)
The scale of wildfire destruction has grown exponentially in recent years, destroying nearly 25,000 buildings in the United States during 2018 alone. However, there is still limited research exploring how wildfires affect migration patterns and household finances. In this study, we evaluate the effects of wildfire destruction on in-migration and out-migration probability at the Census tract level in the United States from 1999 to 2018. We then shift to the individual level and examine changes in homeownership, consumer credit usage, and financial distress among people whose neighborhood ...
Working Papers , Paper 21-29

Working Paper
Financial Vulnerability and Personal Finance Outcomes of Natural Disasters
Edmiston, Kelly D. (2017-09-01)
I evaluate the effects of hurricanes of varying intensity on the financial condition of a typical resident in both affected and unaffected census tracts, where the degree of affect is determined by the relative location of a census tract?s boundary with buffers around the tracks of hurricane eyes that occurred in the years 2000-2014. The primary question in the article is whether financial vulnerability, or, alternatively, ?financial preparedness,? affects post-hurricane disaster financial outcomes. {{p}} I find that hurricanes tend to lower credit scores, for the most, but outcomes are far ...
Research Working Paper , Paper RWP 17-9

Working Paper
Unequal Climate Policy in an Unequal World
Belfiori, Elisa; Carroll, Daniel R.; Hur, Sewon (2024-07-16)
We study climate policy in an economy with heterogeneous households, two types of goods (clean and dirty), and a climate externality from the dirty good. Using household expenditure and emissions data, we document that low-income households have higher emissions per dollar spent than high-income households, making a carbon tax regressive. We build a model that captures this fact and study climate policies that are neutral with respect to the income distribution. A central feature of these policies is that resource transfers across consumers are ruled out. We show that the constrained optimal ...
Globalization Institute Working Papers , Paper 427

Working Paper
Pricing Poseidon: Extreme Weather Uncertainty and Firm Return Dynamics
Roth Tran, Brigitte; Kruttli, Mathias S.; Watugala, Sumudu W. (2019-07-17)
We investigate the uncertainty dynamics surrounding extreme weather events through the lens of option and stock markets by identifying market responses to the uncertainty regarding both potential hurricane landfall and subsequent economic impact. Stock options on firms with establishments exposed to the landfall region exhibit increases in implied volatility of 5-10 percent, reflecting impact uncertainty. Using hurricane forecasts, we show that landfall uncertainty and potential impact uncertainty are reflected in prices before landfall. We find no evidence that markets incorporate better ...
Finance and Economics Discussion Series , Paper 2019-054

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