We document that banks react to domestic climate policy stringency by increasing cross-border lending. We use loan fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with a race to the bottom, the positive effect increases as the borrower country becomes less stringent and is absent if the borrower country is more stringent. Furthermore, climate policy stringency decreases loan supply to domestic borrowers with high carbon risk while increasing loan supply to high-risk borrowers abroad. Our results suggest that cross-border lending enables lenders to exploit the lack of global coordination in climate policies.

Does households' leverage matter for their job search, matching in the labor market, and wages? To answer this question we exploit a loan-to-value ratio restriction in Norway that exogenously reduces household leverage and a sample of displaced workers who lost their jobs due to mass layoffs. We find that a reduction in leverage improves the starting wages of displaced workers. Lower leverage allows workers to prolong their unemployment duration, find jobs in higher paying firms, and switch into new occupations and industries. The positive effects are long-lasting and more pronounced for young and higher educated workers. Our results indicate that policies aimed at limiting households' leverage have the potential to substantially improve their labor market outcomes by reducing the frictions that leverage creates in the job search.

We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their precautionary savings. Since deposits are the largest and most stable source of funding for banks, the decrease in deposits affects bank lending. Banks that raise deposits in states with generous UI policies squeeze their small business lending. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth.

Does population aging affect bank lending? To answer this question we exploit geographic variation in population aging across U.S. counties to provide the first evidence on its impact on bank risk-taking. We find that banks more exposed to aging counties experience deposit inflows due to seniors' higher savings rate. They consequently extend more credit, but relax lending standards: Loan-to-income ratios increase and application rejection rates decline. Exposed banks also see a sharper rise in nonperforming loans during downturns, suggesting that population aging may lead to financial instability. These results are in line with an increase in savings and a decline in investment opportunities induced by population aging.

We identify and study two mechanisms that can undermine the stabilizing effects of unemployment insurance policies. First, households in economies with more generous unemployment insurance reduce their precautionary savings and borrow more in the mortgage market. Second, the share of mortgages among bank assets, as well as the proportion of mortgages with higher loan-to-income ratios, increases on bank balance sheets. As a result, both bank and household balance sheets become vulnerable to adverse shocks, which deepens recessions. Furthermore, booms are also amplified, as reduced income risk enables households to increase their mortgage debt, consumption, and housing demand in response to expansionary shocks. We employ a quantitative general equilibrium model that incorporates interactions between household, bank, and firm balance sheets, as well as county- and state-level evidence from the U.S. housing and mortgage markets to demonstrate the importance of these channels.