This paper proposes a quantitative multi-sector DSGE model with bank failure and firm default to study the interactions … between bank regulation and climate policy. Households value the liquidity of deposits, which are protected by deposit … insurance. Banks collect deposits and issue equity to extend defaultable loans to clean and fossil energy firms. Bank capital …

We examine how climate change affects bank fragility. We find both physical and transitional climate changes lead to … portfolio synchronicity, and higher bank default probability. Our results are robust to using an instrumental variable approach …