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This paper analyzes how capital requirements from environmental risk exposure affect bank lending to the corporate sector, and how these effects transmit to real economic activity and greenhouse gas emissions. It exploits the introduction of a policy in Brazil that required banks to incorporate environmental risks into their capital assessments. Using comprehensive credit data, the paper finds that the policy induces large banks to reallocate their lending away from exposed sectors. The credit contraction has no substantial impact on the real activity and greenhouse gas emissions of these sectors, as smaller banks expand their lending. However, the policy triggers a moderate labor reallocation from small firms (those with higher costs of switching lenders) to large firms in environmentally exposed sectors.

Banks and banking. --- Climatic changes --- Law and legislation.

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This paper analyzes bank stock prices around the world to assess the impact of the COVID-19 pandemic on the banking sector. Using a global database of policy responses during the crisis, the paper also examines the role of financial sector policy announcements on the performance of bank stocks. Overall, the results suggest that the crisis and the countercyclical lending role that banks are expected to play have put banking systems under significant stress, with bank stocks underperforming their domestic markets and other non-bank financial firms. The effectiveness of policy interventions has been mixed. Measures of liquidity support, borrower assistance, and monetary easing moderated the adverse impact of the crisis, but this is not true for all banks or in all circumstances. For example, borrower assistance and prudential measures exacerbated the stress for banks that are already undercapitalized and/or operate in countries with little fiscal space. These vulnerabilities will need to be carefully monitored as the pandemic continues to take a toll on the world's economies.

Bank Stock Returns --- Banking Sector --- Banks and Banking Reform --- Business Cycles and Stabilization Policies --- Coronavirus --- Countercyclical Lending --- COVID-19 --- Finance and Financial Sector Development --- Financial Crisis Management and Restructuring --- Financial Sector and Social Assistance --- Government Announcement --- Liquidity Premium --- Macroeconomics and Economic Growth --- Pandemic Impact --- State-Owned Banks

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This paper studies loan conditions in a context where private banks can operate in two credit markets: a free-market with no government intervention and an earmarked market that relies on government funds and where interest rates are regulated. The paper examines the effects of earmarked lending on the spreads of free-market loans using a rich loan-level dataset on all Brazilian firms between 2005 and 2016. The evidence suggests that private banks strategically channel earmarked credit to firms that are ex ante more difficult to lock-in in the free-market-larger firms in more contested regions. The paper highlights a novel channel whereby earmarked credit is used by private banks to extract more rents. Once a firm receives an earmarked credit from its bank, its interest rates on new loans in the free-market increase while the loan volume remains mostly unaffected.

Access to Finance --- Banking System --- Directed Lending --- Finance and Financial Sector Development --- Financial Regulation and Supervision --- Government Intervention --- Market Power --- Pricing Strategy --- Public Sector Development