Taxing Bank Leverage: The Effects on Bank Portfolio Allocation

69 Pages Posted: 26 Aug 2016 Last revised: 25 Sep 2020

See all articles by Claire Celerier

Claire Celerier

University of Toronto - Rotman School of Management

Thomas K. Kick

Deutsche Bundesbank

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Date Written: September 23, 2020

Abstract

Do banks change their portfolio allocation when facing fiscal reforms that increase the relative cost of their debt? Studying various fiscal reforms across Europe with bank- and loan-level data, we find that both the introduction of an equity subsidy and of a tax on bank liabilities lead banks to refocus their activities on lending. Hence, taxes can be a complementary tool to capital requirements to reduce bank leverage, while maintaining the supply of credit. More broadly, our findings demonstrate how bank balance sheets may play a role in the transmission of fiscal reforms to the real economy.

Keywords: Credit, Bank Leverage, Taxes, Capital Regulation

JEL Classification: E51, E58, G21, G28

Suggested Citation

Celerier, Claire and Kick, Thomas K. and Ongena, Steven R. G., Taxing Bank Leverage: The Effects on Bank Portfolio Allocation (September 23, 2020). Available at SSRN: https://ssrn.com/abstract=2829326 or http://dx.doi.org/10.2139/ssrn.2829326

Claire Celerier (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Thomas K. Kick

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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