Climate Transition Risk, Bank Risk-Taking, and Financial Stability: Evidence from China’s Commercial Banks

Against the backdrop of an accelerated green transition and increasingly stringent climate policies, climate transition risk has emerged as a significant exogenous shock to the financial system. Using a panel of 57 listed commercial banks in China over the period 2010–2024, this study investigates whether and how climate transition risk shapes bank risk-taking behavior and identifies the mechanisms involved. Empirical evidence shows that rising climate transition risk significantly lowers bank risk-taking, a conclusion that holds consistently under various endogeneity and robustness checks. Second, the evidence suggests that climate transition risk may indirectly reduce bank risk-taking by impairing growth capacity and increasing operational costs per unit. Third, moderating effect analysis reveals that higher levels of digital transformation and the implementation of the Paris Agreement help alleviate the adverse effects of climate transition risk, whereas increased economic policy uncertainty amplifies this effect. Fourth, heterogeneity analysis shows that large banks exhibit greater resilience, while banks with higher carbon-intensive exposure are more sensitive to climate transition risk. Overall, these findings provide empirical evidence and policy implications for enhancing climate-related financial regulation and facilitating the green transformation of the financial system.