IMF Working Papers

Bank Profits and Bank Taxes in the EU

By Morgan Maneely, Lev Ratnovski

July 9, 2024

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Morgan Maneely, and Lev Ratnovski. "Bank Profits and Bank Taxes in the EU", IMF Working Papers 2024, 143 (2024), accessed December 21, 2024, https://doi.org/10.5089/9798400281198.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Since 2022, EU banks have been enjoying historically high profits. The profits are mostly driven by the delayed pass-through of the rapid monetary policy tightening to deposit rates and as such are likely transitory. Against this background, almost half of EU countries have introduced new taxes on banks. This paper documents the significant diversity in the design of the new bank taxes—in terms of their tax base, rate, duration, and burden. The paper discusses several trade-offs in the design of bank taxes and argues that an alternative or complementary policy response to temporarily high bank profits is to lock them in as usable bank capital, for example through an increase in countercyclical capital buffer rates.

Subject: Bank levy, Bank soundness, Central bank policy rate, Deposit rates, Financial sector policy and analysis, Financial services, Revenue administration, Taxes

Keywords: Baltics, Bank capital, Bank levy, Bank liability, Bank profit, Bank profits, Bank soundness, Bank taxation, CCyB, Central bank policy rate, Credit supply, Deposit rates, Eastern Europe, EU bank, Europe, European banks, European Union, Global, Interest income, The ECB

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