Abstract

Between 2010 and 2012 and with bank stability as the ultimate target, five European countries implemented a tax levy on banks’ liabilities thereby decreasing the cost of equity relative to the cost of debt. Using a difference-in-differences approach we assess the impact of this tax levy on banks’ participation in the syndicated loan market. We further investigate the impact of the tax levy along bank size and capital structure. We find that banks located in countries where the tax levy was implemented supply more credit. This increase is more significant for larger lenders and banks that are more capital constrained.

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