The Dark Side of the Bank Levy

IESEG Working Paper Series 2020-ACF-08

58 Pages Posted: 15 Oct 2020

See all articles by Marcin Borsuk

Marcin Borsuk

European Central Bank (ECB)

Oskar Kowalewski

IESEG School of Management; LEM - CNRS 9221

Jianping Qi

University of South Florida - College of Business Administration

Date Written: August 5, 2020

Abstract

We examine the consequences of imposing a high tax levy on bank assets. Employing unique supervisory bank-level data, we exploit different channels through which the new tax may impair the stability of the banking sector. We find that following the introduction of the levy, banks increase the cost of loans and decrease their overall availability to the real economy. We also document that changes in banks’ loan portfolios are strongly related to bank-specific profitability and capital adequacy ratios. Furthermore, our evidence supports the view that banks engage in risk-shifting by increasing the risk level of their loan portfolios, attempting to recover from the lower return on equity as the tax reduces their overall profits.

Keywords: bank tax, credit growth, loan portfolios

JEL Classification: G21, H22, L13

Suggested Citation

Borsuk, Marcin and Kowalewski, Oskar and Qi, Jianping, The Dark Side of the Bank Levy (August 5, 2020). IESEG Working Paper Series 2020-ACF-08, Available at SSRN: https://ssrn.com/abstract=3667336 or http://dx.doi.org/10.2139/ssrn.3667336

Marcin Borsuk (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Oskar Kowalewski

IESEG School of Management ( email )

1 Parvis de La Défense
Socle de la Grande Arche
Paris La Défense cedex, 92044
France

HOME PAGE: http://www.ieseg.fr/en/faculty-and-research/professor/?id=1740

LEM - CNRS 9221 ( email )

Lille
France

HOME PAGE: http://lem.cnrs.fr/

Jianping Qi

University of South Florida - College of Business Administration ( email )

USF College of Business
4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States
813-974-9856 (Phone)
813-974-3084 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
29
Abstract Views
148
PlumX Metrics