Spillovers of banking regulation: The effect of the German bank levy on the lending rates of regional banks and their local competitors

Ulrich Haskamp ()

No 664, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

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 and its effect on lending rates of regional banks. 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. Further, with a market share of 42.8% in total, they are relevant. 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. Given an average lending rate of 4.96%, these effects are economically significant. Lastly, adverse effects of the levy on paying banks' loan supply growth are absorbed by their competitors to a certain extent.

Keywords: bank regulation; bank levy; regional spillover; lending rates (search for similar items in EconPapers)
JEL-codes: E43 G21 G28 R10 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cba, nep-mac and nep-ure
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Spillovers of banking regulation: the effect of the German bank levy on the lending rates of regional banks and their local competitors (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:664

DOI: 10.4419/86788770

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