We analyze how capital requirements from environmental risk exposure affect bank lending to the corporate sector, and how these effects transmit to real economic activity and to greenhouse gas emissions. To do so, we exploit the introduction of a policy in Brazil that required banks to incorporate environmental risks in their capital assessments. Using comprehensive credit data, we find that the policy induces large banks to reallocate their lending away from exposed sectors. The credit contraction has no substantial impact on the real activity and greenhouse gas emissions of these sectors, as smaller banks expand their lending afterwards. However, the policy triggers a moderate labor reallocation from small firms (i.e., those with higher costs of switching lenders) and into large firms within environmentally exposed sectors.

We study a large-scale Brazilian loan subsidy program to expand long-term credit. The government subsidizes banks’ funding costs for lenders, who then allocate credit to firms at regulated interest rates below a maximum ceiling. We propose and test a mechanism allowing banks to circumvent the rate caps and capture part of the subsidy. We show that when issuing a subsidized loan, lenders with market power use a cross-product pricing strategy, whereby they increase the price of other products to the same client. Our results have important policy implications for the design and effectiveness of government interventions in credit markets.

We identify the international credit channel by exploiting Mexican supervisory data sets and foreign monetary policy shocks in a country with a large presence of European and U.S. banks. A softening of foreign monetary policy expands credit supply of foreign banks (e.g., U.K. policy affects credit supply in Mexico via U.K. banks), inducing strong firm‐level real effects. Results support an international risk‐taking channel and spillovers of core countries’ monetary policies to emerging markets, both in the foreign monetary softening part (with higher credit and liquidity risk‐taking by foreign banks) and in the tightening part (with negative local firm‐level real effects).