There is increasing interest in assessing the impact of climate policies on the value of financial sector assets, and consequently on financial stability. Prior studies either take a “black box” macro-financial approach or focus solely on equity instruments – though banks’ exposures predominantly consist of debt. We develop a more tractable finance (valuation) approach at the industry-level and use a Merton contingent claims model to assess the impact of a carbon tax shock on the market value of equity and debt instruments. We calibrate our model using detailed firm level vulnerability data and apply the model to 2-digit sectoral exposures of Dutch banks. We find declines in the market value of banks’ assets of 2–13% of core capital for a €100 carbon tax shock, increasing to 6–29% for a €200 carbon tax shock.