en pl
en pl

Central European Management Journal

Zobacz wydanie
Rok 9/2022 
Tom 30 
Numer 3

How to Design a Bank Levy: The Effect of a Levy Scheme on Bank Performance and its Activities

Aneta Hryckiewicz-Gontarczyk
Kozminski University

Karolina Puławska
Kozminski University

9/2022 30 (3) Central European Management Journal

DOI 10.7206/cemj.2658-0845.85


Purpose: One of the regulatory responses to the 2008 financial crisis was to internalize the costs related to banks’ distress by introducing bank levies. More than 23 European banking sectors have been confronted with the new levy regime imposing the additional tax on banks’ balance sheet.

Methodology: This study analyzes the effect of the levy introduction on banks’ profitability, credit activity, and on their business models. More importantly, we confront two different levy regimes – one imposed on banks’ assets and the other on liabilities – to assess their differential impact. A generalized least squares regression with a random effect is performed on a data sample of Hungarian and German credit institutions from 2005 to 2015.

Results: The results show that levy introduction weakened banking sectors in terms of their profitability as well as their lending activity. Even though banks try to compensate for the cost of the levies by passing some of the costs on to the customers and restructuring
their operations to limit the tax burden, we find that these activities are not sufficient to
offset the whole tax burden. We also note that while the asset levy has a more severe effect on banks’ profits, the liability levy severely affects banks’ lending due to lower interest margin resulting from higher cost of funding.

Findings: Our research results provide important conclusions for regulators, especially during turbulent periods such as the COVID-19 pandemic to strengthen the banking sectors by considering the levy suspension.


  1. Abadie, A. (2005). Semiparametric difference-in-differences estimators. Review of Economic Studies, 72, 1–19. https://doi.org/10.1111/0034-6527.00321 [Google Scholar]
  2. Abedifar, P., Hasan, I., & Tarazi, A. (2016). Finance-growth nexus and dual-banking systems: Relative importance of Islamic banks. Journal of Economic Behavior & Organization, 132: 198–215. https://doi.org/10.1016/j.jebo.2016.03.005 [Google Scholar]
  3. Albertazzi, U., & Gambacorta, L. (2010). Bank profitability and taxation. Jornal of Banking and Finance, 34, 2801–2810. https://doi.org/10.1016/j.jbankfin.2010.06.003 [Google Scholar]
  4. Athanasoglou, P.P., Brissimis, S.N., & Delis, M.D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions & Money, 18, 121–136. https://doi.org/10.1016/j.intfin.2006.07.001 [Google Scholar]
  5. Barth, M.E., Gomez-Biscarri, J., Kasznik, R., & López-Espinosa, G. (2017). Bank earnings and regulatory capital management using available for sale securities. Review of Accounting Studies, 22,1761–1792. https://doi.org/10.1007/s11142-017-9426-y [Google Scholar]
  6. Becker, R., Osborn, D.R. & Yildirim, D. (2012). A threshold cointegration analysis of interest rate pass-through to UK mortgage rates. Economic Modelling, 29(6), 2504–2513. https://doi.org/10.1016/j.econmod.2012.08.004 [Google Scholar]
  7. Behn, M., Haselmann, R., & Wachtel, P (2016) Procyclical capital regulation and lending. Journal of Finance, 71, 919–956. https://doi.org/10.1111/jofi.12368 [Google Scholar]
  8. Benetton, M., Eckley, P., Garbarino, N., et al (2020). Capital requirements and mortgage pricing: Evidence from basel ii. Journal of Finance Intermediation, 100883. https://doi.org/10.1016/j.jfi.2020.100883 [Google Scholar]
  9. Berger, A.N., Miller, N.H., Petersen, M.A., et al (2005) Does function follow organizational form? Evidence from the lending practices of large and small banks. Journal of Financial Economics, 76, 237–269. https://doi.org/10.1016/j.jfineco.2004.06.003 [Google Scholar]
  10. Borio, C., Gambacorta, L., & Hofmann, B. (2017) The influence of monetary policy on bank profitability. International Finance, 20, 48–63. https://doi.org/10.1111/infi.12104 [Google Scholar]
  11. Bremus, F., Schmidt, K., & Tonzer, L. (2020) Interactions between bank levies and corporate taxes: How is bank leverage affected? Journal of Banking and Finance, 105874. https://doi.org/10.1016/j.jbankfin.2020.105874 [Google Scholar]
  12. Buch, C.M., Eickmeier, S., & Prieto, E (2014) In search for yield? Survey-based evidence on bank risk taking. Journal of Economic Dynamics Control, 43, 12–30. https://doi.org/10.1016/j.jedc.2014.01.017 [Google Scholar]
  13. Buch, C.M., Hilberg, B., & Tonzer, L. (2016). Taxing banks : An evaluation of the German bank levy. Journal of Banking and Finance, 72, 52–66. https://doi.org/10.1016/j.jbankfin.2016.07.010 [Google Scholar]
  14. Caminal, R. (2003). Taxation of banks: modeling the impact. In: Taxation of financial intermediation: theory and practice for emerging economies (pp. 31–80). Washington: World Bank. [Google Scholar]
  15. Campbell, J.Y., Ramadorai, T., Ranish, B (2015) The impact of regulation on mortgage risk: Evidence from India. American Economic Journal: Economic Policy, 7, 71–102. https://doi.org/10.1257/pol.20130220 [Google Scholar]
  16. Capelle-Blancard, G., & Havrylchyk, O. (2013). The Ability of Banks to Shift Corporate Income Taxes to Customers. CEPII, WP 09: [Google Scholar]
  17. Capelle-Blancard, G., & Havrylchyk, O. (2017). Incidence of bank levy and bank market power. Review of Finance, 21, 1023–1046. https://doi.org/10.1093/rof/rfx007 [Google Scholar]
  18. Chiorazzo, V., & Milani, C. (2011). The impact of taxation on bank profits : Evidence from EU banks. Journal of Banking and Finance, 35, 3202–3212. https://doi.org/10.1016/j.jbankfin.2011.05.002 [Google Scholar]
  19. Demirgüç-Kunt, A., & Huizinga, H. (2001). The taxation of domestic and foreign banking. J Public Econ 79:429–453. https://doi.org/10.1016/S0047-2727(00)00071-2 [Google Scholar]
  20. Demirgüç-Kunt, A., Love, I., & Maksimovic, V. (2004). Business environment and the incorporation decision. World Bank Work Pap 3318: https://doi.org/10.1596/1813-9450-3317 [Google Scholar]
  21. Demirgüç-Kunt, A. & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. World Bank Economic Review, 13, 379–408. https://doi.org/10.1093/wber/13.2.379 [Google Scholar]
  22. Devereux, M., Johannesen, N., & Vella, J. (2015). Can Taxes Tame the Banks ? Evidence from the European Bank Levies. Saïd Business School Research Papers. https://doi.org/10.2139/ssrn.2563634 [Google Scholar]
  23. Devereux, M., Vella, J., Johannesen, N., et al. (2013). Can taxes tame the banks ? Evidence from European bank levies. Work Pap Ser Univ Cent Bus Tax WP 13/25: [Google Scholar]
  24. Dı́az BD, Olalla MG, Azofra SS (2004) Bank acquisitions and performance: evidence from a panel of European credit entities. Journal of Economics and Business, 56, 377–404. https://doi.org/10.1016/j.jeconbus.2004.02.001 [Google Scholar]
  25. ECB (2013). The Eurosystem household finance and consumption survey: results from the first wave. Stat Pap Ser 2. [Google Scholar]
  26. European Central Bank (2019). Opinion of European Central Bank of 16 December 2019 on taxes on assets of certain financial market participants and additional corporate income taxes on certain credit institutions. ECB-PUBLIC CON/2019/4:42–45. [Google Scholar]
  27. Fahlenbrach, R., Prilmeier, R., & Stulz, R.M. (2017). Why does fast loan growth predict poor performance for banks? The Review of Financial Studies, 31, 1014–1063. https://doi.org/10.1093/rfs/hhx109 [Google Scholar]
  28. Fraisse, H., Lé, M., & Thesmar, D. (2020). The real effects of bank capital requirements. Management Science, 66, 5–23. https://doi.org/10.1287/mnsc.2018.3222 [Google Scholar]
  29. Gambacorta, L., & Shin, H.S. (2018). Why bank capital matters for monetary policy. Journal of Finance Intermediation, 35, 17–29. https://doi.org/10.1016/j.jfi.2016.09.005 [Google Scholar]
  30. Ghosh, A. (2015). Banking-industry specific and regional economic determinants of non-performing loans: Evidence from US states. Journal of Financial Stability, 20, 93–104. https://doi.org/10.1016/j.jfs.2015.08.004 [Google Scholar]
  31. Gilje, E.P., Loutskina, E., Strahan, P.E. (2016). Exporting liquidity: Branch banking and financial integration. Journal of Finance, 71, 1159–1184. https://doi.org/10.1111/jofi.12387 [Google Scholar]
  32. Goddard J, Molyneux P, Wilson JOS, Tavakoli M (2007) European banking: An overview. J Bank Financ 31:1911–1935. https://doi.org/10.1016/j.jbankfin.2007.01.002 [Google Scholar]
  33. G. Hanweck, L. Ryu (2005) The Sensitivity of Bank Net Interest Margin and Profitability to Credit, Interest-Rate, and Term-Structure Shocks Across Bank Product Specialisation, Federal Deposit Insurance Corporation (FDIC) Working Paper No 2005-02. https://doi.org/10.2139/ssrn.886727 [Google Scholar]
  34. Haskamp, U. (2018). Spillovers of banking regulation: the effect of the German bank levy on the lending rates of regional banks and their local competitors. International Economics and Economic Policy, 15, 449–466. https://doi.org/10.1007/s10368-017-0404-4 [Google Scholar]
  35. Hoffmann, P.S. (2011). Determinants of the Profitability of the US Banking Industry. International Journal of Business and Social Science, 2, 255–269. [Google Scholar]
  36. Huizinga, H. (2002). A European VAT on financial services? Economic Policy, 17, 497–534. https://doi.org/10.1111/1468-0327.00095 [Google Scholar]
  37. Huizinga, H., Voget, J., & Wagner, W. (2012). International Taxation and Cross-Border Banking. NBER Working Paper Series,18483. https://doi.org/10.3386/w18483 [Google Scholar]
  38. Huybens, E., & Smith, B.D. (1999). Inflation, financial markets and long-run real activity. Journal of Monetary Economisc, 43, 283–315. https://doi.org/10.1016/S0304-3932(98)00060-9 [Google Scholar]
  39. International Monetary Fund (2010). A fair and substantial contribution by the financial sector. IMF Final Rep G-20, June, 2–70 [Google Scholar]
  40. K&LGates (2016) Poland: Wealth Tax on Bank and Insurance Assets Effective from 1 February 2016 - On 15 January 2016, the Polish parliament passed a law on the taxation of wealth of certain financial institutions. The new law came into effect on 1 February 2016. In: JDSUPRA. Retrieved September 17, 2020 from: https://www.jdsupra.com/legalnews/poland-wealth-tax-on-bank-and-insurance-97220/ [Google Scholar]
  41. Kashyap, A.K., Rajan, R., and Stein, J.C. (2002). Banks as liquidity providers: An explanation for the coexistence of lending and deposit-taking. Journal of Finance, 57, 33–73. https://doi.org/10.1111/1540-6261.00415 [Google Scholar]
  42. Keen, M (2011). The taxation and regulation of banks. IMF Working Papers, 11, 1–38. https://doi.org/10.5089/9781463902179.001 [Google Scholar]
  43. King, M.R. (2013). The Basel III net stable funding ratio and bank net interest margins. Journal of Banking and Finance, 37, 4144–4156. https://doi.org/10.1016/j.jbankfin.2013.07.017 [Google Scholar]
  44. Kogler, M. (2019) On the incidence of bank levies: theory and evidence. International Tax and Public Finance, 26, 677–718. https://doi.org/10.1007/s10797-018-9526-z [Google Scholar]
  45. Kwan, S., & Eisenbeis, R. (1997). Bank risk, capitalization, and operating efficiency. Journal of Financial Services Research, 12, 117–131. https://doi.org/10.1023/A:1007970618648 [Google Scholar]
  46. Lee, C.-C., & Hsieh, M.-F. (2013). The impact of bank capital on profitability and risk in Asian banking. Journal of International Money and Finance, 32, 251–281. https://doi.org/10.1016/j.jimonfin.2012.04.013 [Google Scholar]
  47. Leventis, S., Dimitropoulos, P.E., & Anandarajan, A. (2011). Loan loss provisions, earnings management and capital management under IFRS: The case of EU commercial banks. Journal of Financial Services Research, 40, 103–122. https://doi.org/10.1007/s10693-010-0096-1 [Google Scholar]
  48. di Mauro, B.W. (2010). Taxing Systemic Risk: Proposal for a Systemic Risk Levy and a Systemic Risk Fund. University of Mainz and Ger. Council of Econ. Experts. [Google Scholar]
  49. Maxfield, S., Wang, L., & de Sousa, M.M. (2018). The Effectiveness of Bank Governance Reforms in the Wake of the Financial Crisis: A Stakeholder Approach. Journal of Business Ethics, 150, 485–503. https://doi.org/10.1007/s10551-016-3116-8 [Google Scholar]
  50. Merz, J., & Overesch, M. (2016). Profit Shifting and Tax Response of Multinational Banks. ournal of Banking and Finance, 68:57–68. https://doi.org/10.1016/j.jbankfin.2016.03.015 [Google Scholar]
  51. Moody (2016). Poland’s banks threatened by new tax says Moody’s. Retrieved September 17, 2020 from: https://www.ft.com/content/e4b34c80-c372-11e5-808f-8231cd71622e [Google Scholar]
  52. Rajan, R.G. (2005). Has financial development made the world riskier? Technical report, National Bureau of Economic Research. https://doi.org/10.3386/w11728 [Google Scholar]
  53. Rocha, M.D. (2012). Interest rate pass-through in Portugal: interactions, asymmetries and heterogeneities. Journal of Policy Modeling, 34(1), 64–80. https://doi.org/10.1016/j.jpolmod.2011.07.010 [Google Scholar]
  54. Roengpitya, R., Tarashev, N.A., & Tsatsaronis, K. (2014). Bank business models. BIS Quarterly Review, December. [Google Scholar]
  55. Schepens, G. (2016). Taxes and bank capital structure. Journal of Financial Economics, 120, 585–600. https://doi.org/10.1016/j.jfineco.2016.01.015 [Google Scholar]
  56. Schweikhard, F.A., & Wahrenburg, M. (2013). The Internalization of Systemic Risk : An Analysis of Bank Levy Schemes. SSRN Electron J. https://doi.org/10.2139/ssrn.2312156 [Google Scholar]
  57. Valadkhani, A., & Anwar, S. 2012). Interest rate pass-through and the asymmetric relationship between the cash rate and the mortgage rate. Economic Record., 88(282), 341–350. https://doi.org/10.1111/j.1475-4932.2012.00823.x [Google Scholar]
  58. Weistroffer, C. (2013). Ultra‐low interest rate: How Japanese banks have coped. Current Issues: Global Financial Markets, 1–11. [Google Scholar]
  59. Weth, M.A. (2002). The pass-through from market interest rates to bank lending rates in Germany. Discussion Paper Series 1: Economic Studies 2002, 11. Deutsche Bundesbank. https://doi.org/10.2139/ssrn.320112 [Google Scholar]
  60. Wheelock, D.C., & Wilson, P.W. (2012) Do large banks have lower costs? New estimates of returns to scale for US banks. Journal of Money, Credit and Banking, 44:171–199. https://doi.org/10.1111/j.1538-4616.2011.00472.x [Google Scholar]
  61. Williams, J. (2004). Determining management behaviour in European banking. Journal of Banking and Finance, 28: 2427–2460. https://doi.org/10.1016/j.jbankfin.2003.09.010 [Google Scholar]

Kompletne metadane

Cytowanie zasobu

APA style

Hryckiewicz-Gontarczyk, Aneta & Puławska, Karolina (2022). How to Design a Bank Levy: The Effect of a Levy Scheme on Bank Performance and its Activities. (2022). How to Design a Bank Levy: The Effect of a Levy Scheme on Bank Performance and its Activities. Central European Management Journal, 30(3), 136–174. https://doi.org/10.7206/cemj.2658-0845.85 (Original work published 9/2022n.e.)

MLA style

Hryckiewicz-Gontarczyk, Aneta and Puławska, Karolina. „How To Design A Bank Levy: The Effect Of A Levy Scheme On Bank Performance And Its Activities”. 9/2022n.e. Central European Management Journal, t. 30, nr 3, 2022, ss. 136–174.

Chicago style

Hryckiewicz-Gontarczyk, Aneta and Puławska, Karolina. „How To Design A Bank Levy: The Effect Of A Levy Scheme On Bank Performance And Its Activities”. Central European Management Journal, Central European Management Journal, 30, nr 3 (2022): 136–174. doi:10.7206/cemj.2658-0845.85.