Research interest

Climate finance, Physical and Biodiversity risks, El Niño-Southern Oscillation (ENSO), Banking stability, finance risks, Micro- and Macro-prudential Policies and applied econometrics.

Publications 

1. Climate and sovereign risk: The Latin American experience with strong ENSO events

(SJR:Q1, CNRS:1, HCERES:A )

Using monthly panel data over the period 2007–2019 for seven Latin American countries, we empirically test the impact of climate shocks, here strong ENSO events (El Niño Southern Oscillations), on sovereign risk. Local Projections are computed to assess the dynamic response of sovereign spreads to ENSO events. Results show that strong El Niño and La Niña shocks lead to a significant increase in sovereign spreads, but with different timing. Strong El Niño shocks are associated with a significant short-term increase in sovereign spreads, while strong La Niña events are associated with a delayed but significant increase in sovereign spreads after a short-term decrease. Thus, our results suggest a potential asymmetry in the effect of these strong ENSO events on sovereign risk. We also highlight high volatility in the dynamics of sovereign spreads, which may reflect an overreaction of investors faced with the high degree of uncertainty generated by the economic and financial consequences associated with strong ENSO events. Complementary time-series estimates suggest that Costa Rica and Peru are especially subject to these effects. Overall, our results provide a warning about the fact that, in the case of Latin American countries, weather shocks associated with strong ENSO events have adverse macroeconomic and financial consequences that can lead to an increase in sovereign risk, hinder their government's ability to act as a 'climate rescuer' of last resort, and may be aggravated in the future by climate change.

Working Paper 

2. How climate physical risks affect banking stability? The Latin American experience with strong ENSO events

(SJR:Q1, CNRS:1, HCERES:A )

This paper investigates how climate shocks affect banking stability in a large panel of 1208 banks observed at annual frequency over the period 2005-2019 for 16 Latin American countries. We use strong El Niño Southern Oscillation (ENSO) events as a natural experiment for climate shocks related to climate change, as they produce quasi-periodic climate oscillations that can lead to unpredictable natural disasters. Our results show that, when considering Latin American countries, weather shocks associated with strong ENSO events can have adverse financial consequences that lead to a decline in banking stability. We also reveal that strong El Niño and La Niña shocks have asymmetrical effects on banking stability. Strong El Niño shocks are associated with lower banks' stability, resulting from decreased performances associated with increased credit and liquidity risks. In contrast, strong La Niña shocks appear to have economic benefits, with no significant impact on banking stability, but higher banks' performances and lower credit risk. Finally, further estimates identify some key characteristics of "climate-resilient banks". Banks with a larger size, a higher capital ratio, and less market-oriented activities are more resilient to adverse climate shocks resulting from ENSO events. As climate change should intensify the frequency and magnitude of ENSO's cyclical pattern, these findings can help estimate the potential adverse effects of climate change-induced physical risks on banking stability and inform future mitigation and adaptation policies.

3. Le Cercle Vicieux Financier Climatique: Concepts et enjeux

Cet article présente une revue de la littérature empirique sur la relation entre le changement climatique et la stabilité bancaire. Nous étudions précisément en quoi la réaction des banques, suite à un risque climatique, freine le financement des investissements nécessaires à l'adaptation et à l'atténuation des conséquences économiques du risque climatique. Je commence par analyser la littérature sur les effets des risques climatiques sur la stabilité bancaire. Dans ce cadre, j'aborde les principaux risques financiers, ainsi que les canaux de transmission qui peuvent compromettre la stabilité bancaire. Ensuite, nous analysons le rôle crucial des banques dans la résilience économique à travers le canal de l'offre de crédit. En mobilisant la théorie de l'accélérateur financier, les principaux résultats de la littérature montrent que la présence renforcée d'asymétries d'information suite à un risque climatique incite les banques à restreindre l'accès aux crédits, amplifiant les pertes économiques liées au choc climatique, et retardant les investissements nécessaires à l'atténuation et à l'adaptation des risques climatiques. À terme, une restriction auto-entretenue de l'offre de crédit bancaire peut apparaître, ou comme je la nomme, un « cercle vicieux financier climatique », qui pousse les agents économiques vulnérables et dépendants du secteur bancaire dans « une trappe de vulnérabilité climatique », les rendant toujours plus vulnérables aux conséquences du risque climatique. Cet article conclut en proposant plusieurs pistes de recherche future en finance climatique.

Works in progress

1. Indian Ocean Dipole event and Financial Risks. (joint with Olivier Damette) Ongoing research

2. Climate, Bank Governance and Risk-Taking: International Evidence with Strong ENSO Events. Ongoing research