Banks As Patient Lenders: Evidence from a Tax Reform
54 Pages Posted: 29 Mar 2019 Last revised: 24 Jul 2020
Date Written: July 23, 2020
We provide new evidence on how deposit funding affects bank lending. For identification, we exploit a tax reform 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
JEL Classification: G21, G28, G01
Suggested Citation: Suggested Citation