Abstract: In the background of global warming and low-carbon-economy transition, the banking system is faced with rigorous challenges, and evaluating the impact of climate change on the banking system is closely related to financial stability, and the impact on the bank active risk-taking behavior is one of important perspectives. This paper uses the temperature anomaly as a proxy of climate change, and conducts an empirical analysis using a micro panel dataset with 74 listed banks from 2003 to 2022. The results indicate that, increases in temperature anomalies significantly reduce bank active risk-taking; Banks with higher asset adequacy ratio have higher tolerance for climate shocks, but the size of banks does not play a significant moderating role. This paper also discusses the non-performing loan ratio and the balance-sheet capacity channels for the impact of climate change on bank risk-taking. For the non-performing loan ratio channel, increases in temperature anomalies raise the non-performing loan ratios and result in the “credit squeeze” behavior, and thus decrease active risk-taking. For the balance-sheet capacity channel, increases in temperature anomalies harm the balance-sheet capacity of banks by lowering prices of risky assets, and thus restrain active risk-taking. This paper confirms the effects of climate change on bank risk-taking and the underlying mechanism, and provides policy supports for regulators to maintain financial stability and to increase the ability of banks to serve the real economy in the era of climate change.

Key words: climate change, temperature anomaly, bank active risk-taking, non-performing loan ratio, balance-sheet capacity