What the study found
The study found that higher climate change risk is associated with lower banking-system stability in the European Union. It also found that renewable energy consumption and energy-related taxes reduce this negative relationship.
Why the authors say this matters
The authors conclude that environmental governance mechanisms, including sustainable energy transitions and environmental tax policy, may strengthen the resilience of European banking systems. The study suggests these factors are relevant for climate-finance research and financial-stability assessment.
What the researchers tested
The researchers analyzed panel data from 27 EU countries covering 2012 to 2022. They used fixed-effects ordinary least squares, two-stage least squares, and robust generalized method of moments estimations to test the link between climate risk and banking stability, and to examine how renewable energy adoption and energy taxation moderate it.
What worked and what didn't
Across the different estimation approaches, higher climate risk consistently reduced banking-system stability. Renewable energy consumption and energy taxes both mitigated this effect, although the stabilizing influence of renewable energy showed diminishing returns at higher deployment levels and the moderating role of energy taxes was stronger in countries with higher fiscal stringency.
What to keep in mind
The abstract does not describe detailed limitations beyond the study’s EU focus and 2012–2022 sample period. The summary also does not provide specific effect sizes or country-level results.
Key points
- Higher climate change risk was linked to lower banking-system stability in EU countries.
- Renewable energy consumption softened the negative effect of climate risk.
- Energy taxes also softened the negative effect of climate risk.
- The renewable energy effect showed diminishing returns at higher deployment levels.
- Energy-tax moderation was stronger where fiscal stringency was higher.
Disclosure
- Research title:
- Higher climate risk is linked to weaker EU banking stability
- Authors:
- Md Yousuf Ali
- Institutions:
- University of Reading
- Publication date:
- 2026-04-05
- DOI:
- 10.1002/bse.70860
- OpenAlex record:
- View
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