Climate Risk Exposure and Bank Lending Terms in the United States: Evidence from Disaster-Based Regional Risk Indicators
AUTHORS
Siamak Javadi,University of Texas Rio Grande Valley (Robert C. Vackar College of Business), United States
Abdullah Al Masum,University of Wisconsin–Oshkosh (College of Business), United States
ABSTRACT
Climate change has emerged as a material source of financial risk, particularly through physical climate events that disrupt firm operations and increase credit uncertainty. This study examines whether U.S. banks incorporate regional physical climate exposure into corporate lending contracts. Using a panel dataset of publicly listed firms from 2012–2025, we construct a disaster-based Climate Exposure Index (CEI) by combining county-level disaster frequency and economic losses from the NOAA database. We merge these data with firm financial information from Compustat and syndicated loan contract data from Dealscan to analyze the impact of climate exposure on multiple dimensions of loan contracts. Employing panel fixed-effects regressions, we find that firms located in regions with higher climate exposure face significantly tighter lending conditions. A one-standard-deviation increase in CEI is associated with higher loan spreads, shorter maturities, greater collateral requirements, and reduced loan sizes. These results indicate that banks respond to climate risk through multidimensional adjustments to loan contract terms rather than solely through pricing. The effects are more pronounced for firms with lower asset tangibility and weaker financial performance, suggesting that borrower characteristics amplify the impact of environmental risk. This study contributes to the growing literature on climate finance by providing evidence that disaster-based measures of physical climate risk are systematically incorporated into credit contracting. The findings highlight the importance of integrating localized environmental risk metrics into credit risk assessment and financial decision-making frameworks.
KEYWORDS
Climate risk, Physical climate exposure, Bank lending, Loan contract design, Credit risk assessment, Disaster analytics, Smart financial risk management
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