Publication: From Extreme Events to Extreme Seasons: Financial Stability Risks of Climate Change in Mexico
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2024-02-12
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2024-02-12
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This paper explores the financial stability implications of acute physical climate change risks using a novel approach focusing on a severe season associated with a series of tropical cyclone and flood events. Our approach was recently applied to study physical risks in the Mexican financial sector, but the framework also pertains to other countries. We show that even if the scale of individual climate events may not be material at an aggregate national scale, considering a sequence of events could lead to potentially significant macro-financial impacts in the short term. This could occur even if none of the individual events affect the particular region(s) with the highest concentrations of banking sector exposures. Our results indicate the potential for even greater effects in the future, given the increasing severity and frequency of extreme events from climate change. Thus, this paper highlights the importance of consideringseries of extreme physical risk events driven by climate change, rather than just individual extreme events, to better understand financial stability implications and design effective policies.
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“Dolk, Michaela; Laliotis, Dimitrios; Lamichhane, Sujan. 2024. From Extreme Events to Extreme Seasons: Financial Stability Risks of Climate Change in Mexico. Equitable Growth, Finance and Institutions Insight - Finance. © World Bank. http://hdl.handle.net/10986/41037 License: CC BY-NC 3.0 IGO.”
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