The Dark Side of the Bank Levy

Marcin Borsuk (), Oskar Kowalewski () and Jianping Qi ()
Additional contact information
Marcin Borsuk: European Central Bank, Frankfurt, Germany
Jianping Qi: Muma College of Business, University of South Florida, Tampa, USA

No 2020-ACF-08, Working Papers from IESEG School of Management

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.

JEL-codes: G21 H22 L13 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2020-08
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:f202008

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