Climate‐Related Risk Factors and Banks' Operational Risk: The Case of Italian Significant Institutions

ABSTRACT

This paper investigates significant Italian banks' exposure to climate‐related physical risks from the perspective of operational risk. Focusing on acute physical risks, proxied by floods and storms, the analysis adopts a microeconomic and spatial perspective to assess how the territorial distribution of banks' branches at the provincial (NUTS3) level interacts with the geographical incidence of extreme climate events. Spatial autocorrelation techniques are employed to characterize the geographical clustering of both climate events and banking activity. To quantify relative exposure, bank‐ and province‐specific indicators based on Manhattan distance measures, capturing the joint distribution of climate events and banking presence, are used. The results highlight substantial heterogeneity in banks' geographical exposure to climate‐related disasters. While the proposed indicators do not aim to predict realized losses, they provide a transparent and replicable framework to identify areas of heightened climate vulnerability for banks.