Bank levy and household risk-aversion

Stylianos Papageorgiou

Journal of Banking & Finance, 2022, vol. 138, issue C

Abstract: We study a bank levy that funds government guarantees in a general equilibrium setting where banks intermediate between risk-averse households and state-contingent investments. We offer an analytical characterization of the optimal bank levy as a function of household risk-aversion and guarantees. We show that household risk-taking is increasing in guarantees, while it is decreasing as the bank levy and household risk-aversion increase. This allows us to establish a non-trivial relationship between the optimal bank levy and household risk-aversion: Higher risk-aversion optimally induces a higher levy when guarantees exceed a threshold; otherwise, a higher levy shall be observed in economies with less risk-averse households.

Keywords: Bank levy; Risk-aversion; Government guarantees; General equilibrium (search for similar items in EconPapers)
JEL-codes: D53 G28 H21 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:138:y:2022:i:c:s0378426622000462

DOI: 10.1016/j.jbankfin.2022.106446

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