Climate policy uncertainty and bank liquidity creation

This paper examines the influence of Climate Policy Uncertainty (CPU) on the liquidity creation capabilities of banks in China. Through an empirical analysis of data from 387 commercial banks in China, our findings indicate that CPU notably diminishes bank liquidity creation. The effect is predominantly observed on the asset side of liquidity, indicating a reduction in credit supply by banks as a response to increased CPU, while the impact on liability side liquidity appears negligible. The study further uncovers significant regional variations in the vulnerability of banks to CPU, highlighting that foreign banks, eastern and middle banks are disproportionately affected.