Climate stress tests raise spreads for new high emitters by 10bp

Analysis of AnaCredit data reveals that the European Central Bank's 2021-22 climate stress test caused little change in average loan spreads across the banking system.

However, this aggregate outcome masks offsetting adjustments along distinct lending channels.

Participating banks did not systematically raise interest rates on existing corporate relationships.

Instead, institutions adjusted their portfolios by reducing new loan volumes to carbon-intensive incumbent borrowers while applying stricter, carbon-sensitive pricing to entering and exiting clients.

For newly entering borrowers, a one-standard-deviation increase in greenhouse-gas intensity corresponds to loan spreads that are approximately 10 basis points higher.

The study demonstrates that supervisory climate stress tests function primarily through an information and scrutiny channel rather than direct capital surcharges.

Banks subject to direct supervision adjusted lending behavior at the portfolio margin, whereas participation in the more demanding bottom-up Module 3 produced no clear incremental response compared to lighter qualitative modules.

Accounting for the earlier 2020 French pilot exercise confirms that extensive-margin pricing remains the primary adjustment mechanism across regulatory stress-testing waves.