Can Taxes Tame the Banks? Evidence from the European Bank Levies

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn the wake of the …nancial crisis, a number of countries have introduced levies on bank borrowing with the aim of reducing risk in the …nancial sector. This paper studies the behavioral responses to the bank levies and evaluates the policy. We …nd that the levies induced banks to borrow less but also to hold more risky assets.The reduction in funding risk clearly dominates for banks with high capital ratios but is exactly o¤set by the increase in portfolio risk for banks with low capital ratios. This suggests that while the levies have reduced the total risk of relatively safe banks, they have done nothing to curb the risk of relatively risky banks, which presumably pose the greatest threat to …nancial stability.We thank seminar participants at the Goethe University of Frankfurt, University of Copenhagen, University of Oxford (Saïd Business School and Faculty of Law) as well as participants at CESifo, ETPF and IIPF conferences for comments and suggestions. We are particularly grateful to Alan Morrison, Michael Keen, Alfons Weichenrieder and Raphael Parchet for valuable suggestions.

Changes in the Cost of Bank Equity and the Supply of Bank Credit

“…Finally, our study complements the literature on the impact of taxation on bank capital structure (Keen and de Mooij, 2012;Gu et al, 2015;Gambacorta et al, 2016;Schepens, 2016;Devereux et al, 2017), intermediation costs (CapelleBlancard and Havrylchyk, 2017), deposit rates (Buch et al, 2016) and cross-state lending (Smolyansky, 2016). Following the Bank Recovery and Resolution Directive adopted in 2013, the European Union has implemented a Single Resolution…”

“…The European levies vary along four dimensions: the treatment of long term liabilities, the increase in the rate relatively to bank size, some specific deductions, and the use of revenues (Devereux et al, 2017). 8 While in Germany and Sweden, the revenues go to a special reserve fund to ensure that taxpayer's money will not be used for future bailouts, in the UK, the government has decided against a resolution fund because of moral hazard concerns and, hence, revenues go to the budget.…”

“…Such a decrease should make equity more attractive, thereby reducing bank leverage (Schepens, 2016;Devereux et al, 2017). But what is the effect on the composition of bank balance sheets?…”

“…1 (Schepens, 2016) and (Devereux et al, 2017) find that banks exposed to, respectively, an ACE and a liability tax increase their reliance on equity financing. The objective of this paper is to identify whether banks shift the composition of their balance sheet to assets that are more costly to hold in terms of capital charge, i.e corporate loans, away from security holdings or interbank assets.…”

The stock market effects of a securities transaction tax: Quasi-experimental evidence from Italy

“…It is therefore not surprising that new taxes on the …nancial sector have been recently proposed and in some cases implemented (Keen, 2011a, Shakleford et al, 2010, Hemmelgarn and Nicodeme, 2012, IMF, 2010, Devereux et al, 2013. 2 In particular, the crisis also revamped discussion about the desirability of a Security Transaction Tax (STT).…”