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The Dark Side of the Bank Levy

Author

Listed:
  • Marcin BORSUK

    (European Central Bank, Frankfurt, Germany)

  • Oskar KOWALEWSKI

    (IESEG School of Management & LEM-CNRS 9221)

  • Jianping QI

    (Muma College of Business, University of South Florida, Tampa, USA)

Abstract

We examine the consequences of imposing a high tax levy on bank assets. Employing unique supervisory bank-level data, we exploit different channels through which the new tax may impair the stability of the banking sector. We find that following the introduction of the levy, banks increase the cost of loans and decrease their overall availability to the real economy. We also document that changes in banks’ loan portfolios are strongly related to bank-specific profitability and capital adequacy ratios. Furthermore, our evidence supports the view that banks engage in risk shifting by increasing the risk level of their loan portfolios, attempting to recover from the lower return on equity as the tax reduces their overall profits.

Suggested Citation

  • Marcin BORSUK & Oskar KOWALEWSKI & Jianping QI, 2020. "The Dark Side of the Bank Levy," Working Papers 2020-ACF-08, IESEG School of Management.
    • Handle: RePEc:ies:wpaper:f202008
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    File URL: https://www.ieseg.fr/wp-content/uploads/2020/10/2020-ACF-08.pdf
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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