Spillovers of banking regulation: the effect of the German bank levy on the lending rates of regional banks and their local competitors

2021

Preprint

Risk-taking by financial institutions is widely regarded as the one of the causes of the global financial crisis. To reduce the probability of crises and internalize the costs of financial institution distress, policymakers have introduced bank levies (BLs). In this study, we evaluate the effects of the Hungarian and German BLs on the risk-taking behavior of financial institutions. We compare two totally different BL designs. The results unambiguously demonstrate that a BL on assets has a negative impact on the financial sector’s stability. The results of analyzing the influence that introducing BLs has had on the German financial sector demonstrate that BLs on liabilities decrease credit risk. An improved understanding of the determinants of the risk of EU financial institutions is very important for regulators and supervisors interested in benchmarking and validation issues related to the new EU banking regulation.

Section: The Bl In Germanymentioning

confidence: 96%

Effect of bank levy introduction on bank risk-taking

2021

Preprint

Section: The Bl In Germanymentioning

confidence: 96%

“…Another study by Haskamp (2018) proves that levy-paying banks reduce their loan growth, while their competitors weaken this effect by augmenting their own loan supply. However, by raising the cost of borrowed funds, levies are designed to increase the nancial sector's stability by inducing nancial institutions to rely more on their own capital.…”

Section: Hypotheses Development 221 Does the Hungarian Bl Increase The Risk Of Future Credit Losses?mentioning

confidence: 99%

Effect of Bank Levy Introduction on Bank Risk-Taking

2020

SSRN Journal

Risk-taking by nancial institutions is widely regarded as the one of the causes of the global nancial crisis. To reduce the probability of crises and internalize the costs of nancial institution distress, policymakers have introduced bank levies (BLs).In this study, we evaluate the effects of the Hungarian and German BLs on the risk-taking behavior of nancial institutions. We compare two totally different BL designs. The results unambiguously demonstrate that a BL on assets has a negative impact on the nancial sector's stability. The results of analyzing the in uence that introducing BLs has had on the German nancial sector demonstrate that BLs on liabilities decrease credit risk. An improved understanding of the determinants of the risk of EU nancial institutions is very important for regulators and supervisors interested in benchmarking and validation issues related to the new EU banking regulation. Key MessagesThe reduction in risk-taking behavior depends on the size and type of nancial institution.Bank levies on assets negatively affect nancial sector stability.Bank levies on liabilities decrease credit risk.

“…As only systemic banks had been rescued, smaller banks benefit from a tax allowance (Buch et al 2016), which means that the BL rate for large commercial banks, large savings banks, and other large banks is higher (Buch et al 2017). However, Haskamp (2016) observed the spillover effects of the BL from levy-paying commercial banks to commercial banks in the German financial sector that are not obligated to pay the BL. He claimed that an increase in the lending rates of commercial banks paying the BL caused an increase in the lending rates of institutions exempt from the BL (spillover effect).…”

Section: The Bl In Germanymentioning

confidence: 98%

The Effect of Bank Levy Introduction on Commercial Banks in Europe

2021

JRFM

We evaluated the effects of the bank levy (BL) on the profitability of commercial banks and the balance sheet reconstruction, and the shifting of banks’ activities into countries with lower BL rates after BL introduction. Moreover, we investigated the effects of the Basel III and Single Resolution Fund (SRF) introduction on the amount of BL payment. We compared two different BL designs: the Hungarian and the German versions. The results clearly pointed to the negative effect of BL introduction on the ROA of larger Hungarian commercial banks and of smaller commercial banks in Germany. Moreover, the results showed that the introduction of the BL did not influence loan activity in Hungary. However, it decreased the value of the loans from German commercial banks. The results showed that commercial banks in Hungary prefer to restructure their balance or shift assets among different locations or entities to decrease the bank levy. The research findings also showed that Hungarian commercial banks decreased the value of paid BL after the Basel III introduction. On the other hand, the results also showed that the value of paid BL in German commercial banks increased after the Basel III and SRF introduction, especially in larger banks.