- Research Article
- 10.1080/17477778.2025.2585159
How do climate and demographic changes affect the global banking industry? A system dynamics approach
- Mar 12, 2026
- Journal of Simulation
- Indranarain Ramlall + 1 more +1
ABSTRACT This study employs a system dynamics framework to analyze the impact of climate policy uncertainty and aging populations on global banking stability using data from over 3500 banks (2010–2019). The model uniquely integrates feedback loops, nonlinear interactions, and time delays to assess how these shocks propagate through deposits, loans, profitability, and risk metrics. Key findings reveal that a 30% aging population shock reduces bank profitability by 25.6% due to compressed interest margins, while a 30% CPU shock contracts lending by 10.4% and sustains elevated non-performing loans (NPLs), highlighting systemic vulnerabilities. Risk sentiment shocks amplify financial instability, with a 30% increase triggering a 5.7% profit decline. The study contributes to literature by bridging climate and demographic risks with banking dynamics, offering a stress-testing tool for policymakers. Key policy implications include integrating climate risks into macroprudential regulation, incentivizing adaptive financial products, and enhancing dynamic provisioning to mitigate nonlinear feedback effects.
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