Money at risk: climate change and performance of Canadian banking sector

Abstract

Purpose

In the last few decades, the frequency and intensity of extreme weather events have increased in most parts of the world including Canada because of global warming. The global warming in Canada is about double the magnitude of global warming; therefore, policymakers are concerned about the potential significant impact of the weather catastrophes on the economy and financial sector. The purpose of this study is to explore the impact of weather catastrophes on the Canadian banking sector.

Design/methodology/approach

Using a sample of banking firms from Canada over the period 1988–2019, the present study estimates different econometric techniques to investigate the impact of weather catastrophes on the risk and performance of Canadian banks.

Findings

Analyses of the study do not find a significant impact of the weather catastrophes on the performance of the Canadian banks; however, it has helped banks to lower their risk level and improve stability due to proactive risk management. The findings of this study are not consistent with concerns of the policymakers about climate risk to the Canadian bank sector. More sector-specific research and policy initiatives are recommended to minimize the future financial risk of the increased frequency and intensity of natural disasters.

Originality/value

The study contributes to support the notion that the climate risk of banks is protected with insurance and reconstruction activities provide more banking opportunities.

Citation

U-Din, S., Nazir, M.S. and Shahzad, A. (2023), "Money at risk: climate change and performance of Canadian banking sector", Journal of Economic and Administrative Sciences, Vol. 39 No. 2, pp. 273-285. https://doi.org/10.1108/JEAS-02-2021-0033