Bank Profits and Bank Taxes in the EU

Morgan Maneely and Lev Ratnovski

No 2024/143, IMF Working Papers from International Monetary Fund

Abstract: Since 2022, EU banks have been enjoying historically high profits. The profits are mostly driven by the delayed pass-through of the rapid monetary policy tightening to deposit rates and as such are likely transitory. Against this background, almost half of EU countries have introduced new taxes on banks. This paper documents the significant diversity in the design of the new bank taxes—in terms of their tax base, rate, duration, and burden. The paper discusses several trade-offs in the design of bank taxes and argues that an alternative or complementary policy response to temporarily high bank profits is to lock them in as usable bank capital, for example through an increase in countercyclical capital buffer rates.

Keywords: European banks; bank profits; bank taxation; credit supply; bank capital; CCyB; European Union; the ECB; EU bank; bank profit; interest income; bank liability; Bank levy; Deposit rates; Central bank policy rate; Bank soundness; Europe; Eastern Europe; Baltics; Global (search for similar items in EconPapers)
Pages: 26
Date: 2024-07-09
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mon, nep-pbe and nep-pub
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