Banks as patient lenders: Evidence from a tax reform

Elena Carletti, Filippo De Marco, Vasso Ioannidou and Enrico Sette

Journal of Financial Economics, 2021, vol. 141, issue 1, 6-26

Abstract: We provide new evidence on how deposit funding affects bank lending. For identification, we exploit the 2011 reform of the investment income tax in Italy that induced households to substitute bank bonds with deposits. We find that banks with larger increases in deposits expand the supply of credit lines and long-term credit to low-risk firms. Additional evidence indicates that these results are consistent with theories emphasizing the demandable nature of the deposit contract rather than theories stressing the stability of deposit funding due to government guarantees. In this regard, we show that banks under stress face large runs on retail deposits, but not on retail bonds.

Keywords: Banks; Deposits; Maturity; Risk-taking; Government guarantee (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Banks as Patient Lenders: Evidence from a Tax Reform (2019)
Working Paper: Banks as Patient Lenders: Evidence from a Tax Reform (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:141:y:2021:i:1:p:6-26

DOI: 10.1016/j.jfineco.2020.07.021

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