Systemic risk and CO2 emissions in the U.S.

Angelos Kanas; Philip Molyneux; Panagiotis D. Zervopoulos

doi:10.1016/j.jfs.2022.101088

Journal of Financial Stability Vol. 64 2023

Systemic risk and CO2 emissions in the U.S.

Angelos Kanas^1,2,3; Philip Molyneux^4,5; Panagiotis D. Zervopoulos⁶

¹ University of Piraeus · ² Hellenic Open University · ³ Hellenic Parliament · ⁴ Abu Dhabi University · ⁵ Bangor University · ⁶ University of Sharjah

Abstract

We provide both a theoretical framework and empirical results for the relationship between CO2 emissions and systemic risk in the U.S. Based on a modified structural distance-to-default model that integrates physical risk effects, a theoretical framework is developed, documenting a positive link between CO2 emissions and systemic risk. Network VAR analysis, Diebold and Yilmaz variance decomposition, and conditional Granger causality provide empirical support for this positive link. Bank assets are found to be negatively related to CO2 emissions, which indicates an adjustment of the banking sector’s assets towards a lower-carbon economy. Policy implications include government-sponsored insurance support for banks facing insured losses.

DOI: 10.1016/j.jfs.2022.101088
Volume: 64
Pages: 101088
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Systemic risk and CO2 emissions in the U.S.

Abstract

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