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Taxing banks: An evaluation of the German bank levy

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  • Buch, Claudia M.
  • Hilberg, Björn
  • Tonzer, Lena

Abstract

Bank distress can have severe negative consequences for the stability of the financial system, the real economy, and for public finances. Regimes for the restructuring and resolution of banks, financed by bank levies and fiscal backstops, seek to reduce these costs. Bank levies attempt to internalize systemic risk and to increase the costs of leverage. This paper evaluates the effects of the German bank levy implemented in 2011 as part of the German Bank Restructuring Act. Our analysis offers three main insights. First, revenues raised through the bank levy are lower than expected, because of low tax rates and high thresholds for tax exemptions. Second, the bulk of the payments were contributed by large commercial banks and by the central institutions of savings banks and credit unions. Third, for the banks affected by the levy, we find evidence for a reduction in lending and higher deposit rates.

Suggested Citation

  • Buch, Claudia M. & Hilberg, Björn & Tonzer, Lena, 2014. "Taxing banks: An evaluation of the German bank levy," Discussion Papers 38/2014, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:382014
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    Cited by:

    1. Jose Martin‐Flores & Christophe Moussu, 2019. "Is bank capital sensitive to a tax allowance on marginal equity?," European Financial Management, European Financial Management Association, vol. 25(2), pages 325-357, March.
    2. Giacomo Ricotti & Marco Burroni & Vincenzo Cuciniello & Elena Padovani & Elena Pisano & Stefania Zotteri, 2016. "The tax burden on banks over the period 2006-2014," Questioni di Economia e Finanza (Occasional Papers) 314, Bank of Italy, Economic Research and International Relations Area.
    3. Vollmer Uwe, 2015. "‚Stairway to Heaven‘ oder ‚Highway to Hell‘? – Eine Einschätzung der Europäischen Bankenunion / ‚Stairway to Heaven‘ or ‚Highway to Hell‘? – An Evaluation of the European Banking Union," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 66(1), pages 147-174, January.
    4. Diemer, Michael, 2017. "Bank levy and bank risk-taking," Review of Financial Economics, Elsevier, vol. 34(C), pages 10-32.
    5. Jean-Michel Sahut & Faten Ben Bouheni, 2019. "Profitability and Risk-Taking Among Cooperative Banks in the Eurozone," Economics Bulletin, AccessEcon, vol. 39(2), pages 1103-1117.
    6. Franz Reiter & Dominika Langenmayr & Svea Holtmann, 2021. "Avoiding taxes: banks’ use of internal debt," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(3), pages 717-745, June.
    7. Richard M. Bird, 2014. "Global Taxes and International Taxation: Mirage and Reality," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1429, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    8. Ulrich Haskamp, 2018. "Spillovers of banking regulation: the effect of the German bank levy on the lending rates of regional banks and their local competitors," International Economics and Economic Policy, Springer, vol. 15(2), pages 449-466, April.
    9. Richard M. Bird, 2018. "Are global taxes feasible?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1372-1400, October.
    10. Josef Schroth, 2016. "Financial Crisis Interventions," Staff Working Papers 16-29, Bank of Canada.
    11. Josef Schroth, 2021. "On the Distributional Effects of Bank Bailouts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 252-277, April.
    12. Bremus, Franziska & Schmidt, Kirsten & Tonzer, Lena, 2020. "Interactions between bank levies and corporate taxes: How is bank leverage affected?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics.
    13. Aneta Hryckiewicz & Piotr Mielus & Karolina Skorulska & Malgorzata Snarska, 2018. "Does a bank levy increase frictions on the interbank market?," Working Papers 2018-033, Warsaw School of Economics, Collegium of Economic Analysis.
    14. Reiter, Franz, 2017. "Avoiding Taxes: Banks' Use of Internal Debt," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168115, Verein für Socialpolitik / German Economic Association.
    15. Shaddady, Ali & Moore, Tomoe, 2019. "Investigation of the effects of financial regulation and supervision on bank stability: The application of CAMELS-DEA to quantile regressions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 96-116.
    16. J. E. Boscá & R. Doménech & J. Ferri & J. Rubio-Ramirez, 2019. "Macroeconomic Effects of Taxes on Banking," Studies on the Spanish Economy eee2019-09, FEDEA.
    17. Gunther Capelle-Blancard & Olena Havrylchyk, 2017. "Incidence of Bank Levy and Bank Market Power," Review of Finance, European Finance Association, vol. 21(3), pages 1023-1046.
    18. Michael Kogler, 2019. "On the incidence of bank levies: theory and evidence," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 677-718, August.
    19. Bremus, Franziska & Schmidt, Kirsten & Tonzer, Lena, 2018. "Interactions between regulatory and corporate taxes: How is bank leverage affected?," IWH Discussion Papers 16/2018, Halle Institute for Economic Research (IWH).
    20. Chronopoulos, Dimitris K. & Sobiech, Anna L. & Wilson, John O.S., 2019. "The Australian bank levy: Do shareholders pay?," Finance Research Letters, Elsevier, vol. 28(C), pages 412-415.
    21. Horváth, Bálint L., 2020. "The interaction of bank regulation and taxation," Journal of Corporate Finance, Elsevier, vol. 64(C).
    22. Bofinger, Peter & Buch, Claudia M. & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314.
    23. Kick, Thomas & Celerier, Claire & Ongena, Steven, 2017. "Changes in the Cost of Bank Equity and the Supply of Bank Credit," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168164, Verein für Socialpolitik / German Economic Association.
    24. Manuel Buchholz, 2015. "How effective is macroprudential policy during financial downturns? Evidence from caps on banks̕ leverage," Bank of Estonia Working Papers wp2015-7, Bank of Estonia, revised 30 Dec 2015.

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    More about this item

    Keywords

    bank levy; bank lending; interest rates; German banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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