Taxing Bank Leverage: The Effects on Bank Capital Structure, Credit Supply and Risk-Taking

61 Pages Posted: 26 Aug 2016 Last revised: 5 Jun 2018

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; Centre for Economic Policy Research (CEPR)

Date Written: February 1, 2018

Abstract

We investigate whether taxation can be used to contain bank leverage, while leaving the supply of credit unaffected. We exploit the staggered introduction between 1996 and 2012 across Europe of tax reforms that increase the fiscal cost of leverage. Employing both bank- and loan-level data, we estimate the impact of the reforms on the leverage of banks and their supply of credit. We find that tax reforms that increase the cost of leverage lead banks to rely more on equity, to shift the composition of their assets towards loans, and to expand their lending to firms without incurring more risk.

Keywords: Credit, Bank Leverage, Taxes, Capital Regulation

JEL Classification: E51, E58, G21, G28

Suggested Citation

Celerier, Claire and Kick, Thomas K. and Ongena, Steven, Taxing Bank Leverage: The Effects on Bank Capital Structure, Credit Supply and Risk-Taking (February 1, 2018). 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

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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