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Swedish Banks’ Exposure to Climate Risks

Kraft, Vilgot LU (2024) NEKP01 20241
Department of Economics
Abstract
This thesis quantifies and examines the exposure of Swedish banks to climate risks by implementing multivariate GJR- and DCC-GARCH models to dynamically estimate climate beta and assess climate risk. The study focuses on the four largest Swedish banks, which collectively manage approximately 75% of the total assets in the Swedish banking sector, and evaluates their sensitivity to transition risks associated with climate change.

The findings highlight significant variations in climate risk exposure, with some banks showing higher volatility and greater vulnerability during times of financial distress. Despite generally lower aggregated climate risk compared to those observed in US and UK banks, notable peaks during financial crises highlight... (More)
This thesis quantifies and examines the exposure of Swedish banks to climate risks by implementing multivariate GJR- and DCC-GARCH models to dynamically estimate climate beta and assess climate risk. The study focuses on the four largest Swedish banks, which collectively manage approximately 75% of the total assets in the Swedish banking sector, and evaluates their sensitivity to transition risks associated with climate change.

The findings highlight significant variations in climate risk exposure, with some banks showing higher volatility and greater vulnerability during times of financial distress. Despite generally lower aggregated climate risk compared to those observed in US and UK banks, notable peaks during financial crises highlight how climaterelated shocks can aggravate existing vulnerabilities. This analysis underscores the importance of proactive climate risk management and provides essential insights for financial regulators and policymakers to support the resilience of the Swedish financial sector against emerging climate risks. (Less)
Please use this url to cite or link to this publication:
author
Kraft, Vilgot LU
supervisor
organization
course
NEKP01 20241
year
type
H2 - Master's Degree (Two Years)
subject
keywords
GJR-GARCH, DCC-GARCH, Climate Beta, Climate Risk
language
English
id
9154754
date added to LUP
2024-10-01 13:19:19
date last changed
2024-10-01 13:19:19
@misc{9154754,
  abstract     = {{This thesis quantifies and examines the exposure of Swedish banks to climate risks by implementing multivariate GJR- and DCC-GARCH models to dynamically estimate climate beta and assess climate risk. The study focuses on the four largest Swedish banks, which collectively manage approximately 75% of the total assets in the Swedish banking sector, and evaluates their sensitivity to transition risks associated with climate change.

The findings highlight significant variations in climate risk exposure, with some banks showing higher volatility and greater vulnerability during times of financial distress. Despite generally lower aggregated climate risk compared to those observed in US and UK banks, notable peaks during financial crises highlight how climaterelated shocks can aggravate existing vulnerabilities. This analysis underscores the importance of proactive climate risk management and provides essential insights for financial regulators and policymakers to support the resilience of the Swedish financial sector against emerging climate risks.}},
  author       = {{Kraft, Vilgot}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Swedish Banks’ Exposure to Climate Risks}},
  year         = {{2024}},
}