Climate beliefs, attitudes, and bank risk management

We investigate the relationship between climate beliefs and attitudes (CBA) and bank risk management. We find that county-level CBA is positively associated with bank loan loss reserves (ALL) and provisions (LLP), suggesting that banks set aside higher reserves to cushion potential losses when managers believe in climate change. Further analyses using multiple approaches indicate that CBA has incremental explanatory power over climate risk in influencing ALL and LLP—this is an important insight since prior banking literature has mainly focused on climate risk. Our results are robust to various checks, and we show that CBA is negatively related to bank loan portfolio risk and overall bank risk-taking. In consequence tests, we document that CBA attenuates the positive relationship between climate risk and bank risk. Our study suggests that CBA is a behavioral impetus for bank managers to be more prudent in managing climate risk exposures via conservative loan loss accounting.