This study investigates the relationship between climate risks—including emissions and extreme weather events—and financial instability in the agricultural sector. The results show that both excessive wet conditions and extreme dry conditions significantly contribute to higher farm bankruptcy rates, thereby undermining the financial performance of agricultural banks. Moreover, carbon emissions further intensify these vulnerabilities, driven in part by regulatory pressures and farmers' overinvestment, which raise operational costs. These climate-related risks pose systemic challenges to the agriculture-related loan market, threatening both farm viability and the financial stability of agricultural lenders.