Authors: Hyeyoon Jung, João A.C. Santos, and Lee Seltzer
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Staff Reports
U.S. Banks’ Exposures to Climate Transition Risks
Number 1058
April 2023 Revised June 2026
April 2023 Revised June 2026
JEL classification: G21, H23, Q54
We propose a new approach to estimate banks’ credit exposures to transition risks that combines sectoral effects of climate policies from general equilibrium (GE) models with historical information on loans’ default risks. At worst, estimated exposures reach 14 percent of bank loan portfolio values. Accounting for historic loan payoff structures reduces exposures to 0.5 percent–2 percent. Exposures can increase by 3–5 percentage points due to aggregate economic shocks. Analyses surrounding climate transition events suggest our estimates can serve as an upper bound on banks’ transition risk exposures. Highlighting our measure’s novelty, emissions explain at most 60 percent of variation in banks’ exposures.
Author Disclosure Statement(s)
Hyeyoon Jung
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
João A. C. Santos
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Lee Seltzer
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
João A. C. Santos
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Lee Seltzer
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
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