Abstract
During the financial crisis numerous European governments decided to rescue domestic banks with public funds to prevent a collapse of the banking system. To internalize the public costs, bank levies have been introduced in many countries. This paper analyzes the German bank levy which was implemented from 2011 till 2014. We examine not only if banks shift the cost of the levy to their customers’ lending rates, but also whether there are spillovers to their local competitors. The German savings and cooperative banks are a perfect setting to study such effects as they only operate within well-defined regions, allowing us to identify their local competitors. Additionally, only some of them are subject to the levy due to a tax allowance. Firstly, we find that a bank that has to pay the bank levy raises its lending rate by about 0.14 percentage points. Secondly, we examine whether the increased lending rates of paying banks spill over to their local competitors. We find this indirect effect to be about one third of the size. Lastly, adverse effects of the levy on paying banks’ loan supply growth are absorbed by their competitors to a certain extent.
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Notes
Furthermore, the German bank levy taxes the derivative exposure of banks. However, we refrain from focusing on this part of the bank levy as no data are available for German savings and cooperative banks. Further, these banking groups are not very active in derivative trading.
Available online: http://de.wikipedia.org/wiki/Liste_der_Sparkassen_in_Deutschland.
For savings banks there is a complete list of mergers available at German Wikipedia.
A NUTS 2 region has a population between 800,000 and 3 million persons and usually includes several counties. We use the 2010 NUTS version.
These are aggregations of NUTS3 regions. They are created based on economic interdependencies between districts.
If we specify the variable to be the ratio of competitors who are paying the banking levy, the variable is nearly binary anyway. Less than 5% of the observations are between zero and one. Still, our results are even stronger if we use the ratio specification of the variable.
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Haskamp, U. Spillovers of banking regulation: the effect of the German bank levy on the lending rates of regional banks and their local competitors. Int Econ Econ Policy 15, 449–466 (2018). https://doi.org/10.1007/s10368-017-0404-4
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DOI: https://doi.org/10.1007/s10368-017-0404-4