Considering the multifaceted complexity of systemic risk and lack of predictive power of the current Financial Soundness Indicators, the authors intend to develop a new banking sector fragility index as an early warning signal for systemic risks; but also examine how climate shocks and exchange rate pressures affect the fragility of the banking sector. Furthermore, we propose the Climate Augmented Currency and Banking Crisis (CACB) model which is an extension of the second and third generation-type speculative attack model. The Augmented Autoregressive Distributed Lag (A-ARDL) is applied on monthly data from 2007M1-2023M12 in The Gambia. The analysis reveals that temporary climate shocks increase banking sector vulnerability in the long run. On the other hand, long term climate shock decreases banking sector fragility both in the short and long run. Likewise, a surge in exchange rate market pressure decreases banking sector vulnerability both in the short and long run. However, exchange volatility and exchange rate overvaluations increase the potential of a systemic risk in the banking sector. The CACB analysis identified four determinants of currency crisis: fragile banking sector, low level of international reserves, climate shock and state-contingent exchange rate overvaluation.

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