Climate Change and Financial Stability : The Impact of Regulatory Policies

[Purpose] This study investigates how climate－related challenges affect financial stability and explores response strategies to mitigate these challenges. [Methodology] The study employs panel analysis with fixed effects and dynamic GMM to test the robustness of the model and address potential endogeneity issues. Additionally, the author utilizes a difference－in－differences approach to evaluate the effectiveness of climate－related regulations. [Findings] First, carbon emissions are found to exacerbate financial instability. Second, the negative relationship between carbon emissions and financial stability tends to intensify as emissions decrease. Third, regulations such as carbon taxes and emissions trading systems have the potential to reduce carbon emissions. [Implications] This study is the first to examine the impact of carbon emissions on financial stability using a global dataset. It reveals a significant negative relationship between carbon emissions and financial stability, particularly in high－emission and high－income countries. The findings suggest that the carbon emission reduction premium may increase as emissions decline, and that regulatory interventions can play a beneficial role in curbing emissions.