Taxing Bank Leverage: The Effects on Bank Portfolio Allocation

48 Pages Posted: 26 Aug 2016 Last revised: 24 Oct 2019

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; Centre for Economic Policy Research (CEPR)

Date Written: May 15, 2019

Abstract

We investigate whether fiscal reforms that reduce banks' incentives to leverage also affect banks' portfolio allocation. Using the introduction of an equity subsidy in Belgium in 2005, we show that treated banks shift their portfolio composition towards loans, increase lending and invest in less risky loans. Results are confirmed when exploiting the introduction of a tax on bank liabilities: overall, taxing bank leverage leads banks to refocus their activity on lending. Our results suggest that taxes can be a complementary tool to capital requirements to reduce bank leverage while maintaining credit supply.

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 (May 15, 2019). 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)

London
United Kingdom

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