American University of Beirut

Too-big-to-strand? Bond versus Bank Financing in the Transition to a Low-carbon Economy


Steven Ongena is a professor of banking at the University of Zurich, a senior chair at the Swiss Finance Institute, a research professor at KU Leuven, and a research fellow in financial economics of CEPR. He is also a research professor at Deutsche Bundesbank. He has published more than 100 papers in refereed journals, including in the American Economic Review, Econometrica, Journal of Finance, Journal of Financial Economics, Journal of Political Economy, Management Science, Review of Finance, and Review of Financial Studies. In 2017 he received an ERC Advanced Grant and in 2012 a NYU-Fordham-RPI Rising Star in Finance Award.


​Dr. Mohamad Faour, Assistant Professor of Finance at AUB | OSB.


What is the role market- and bank-based debt play in the climate transition process? We present evidence that bond markets price the risk that assets held by fossil fuel firms strand, while banks in the syndicated loan market seemingly do not price this risk much. Consequently, to fulfill their financing needs fossil fuel firms increasingly rely less on bonds and more on loans. We can interpret the within-firm bond-to-loan substitution along stranding risk as a contraction in the supply of bond versus bank funding. Within the banking sector especially the big banks are willing to provide cheaper and more financing to fossil fuel firms.​​

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