The Taxation and Regulation of Banks

August 1, 2011

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Format: Chicago

Michael Keen. The Taxation and Regulation of Banks, (USA: International Monetary Fund, 2011) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The financial crisis has prompted a reconsideration of the taxation of financial institutions, with practice outstripping principle: France, Germany, the United Kingdom and several other European countries have now introduced some form of bank tax, and the U.S. administration has revived its own proposal for such a charge. This paper considers the structure, appropriate rate, and revenue yield of corrective taxation of financial institutions addressed to two externalities, consequent on excessive risk-taking, prominent in the crisis: those that arise when such institutions are simply allowed to collapse, and those that arise when, to avoid the harm this would cause, their creditors are bailed out. It also asks whether corrective taxation or a regulatory capital requirement is the better way to address these concerns. The results suggest a potential role for taxing bank borrowing, perhaps as an adjunct to minimum capital requirements, at marginal rates that rise quite sharply at low capital ratios (but are likely lower when the government cannot commit to its bailout policy), reaching levels higher than those of the bank taxes so far adopted or proposed.

Subject: Bank levy, Banking, Capital adequacy requirements, Creditor bail-in, Economic sectors, Environmental taxes, Financial crises, Financial regulation and supervision, Financial sector, Taxes

Keywords: Ability bank, Bailout externality, Bailout subsidy, Bank capital, Bank equity, Bank failure, Bank levy, Bank owner, Bank taxation, Capital adequacy requirements, Corrective taxation, Creditor bail-in, Environmental taxes, Equity capital, Europe, Financial sector, Fixed capital capital ratio, Progressive tax, Public funds, Representative bank, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/206
Stock No:

WPIEA2011206
ISBN:

9781463902179
ISSN:

1018-5941

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