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Would Taxing Banks Really Make the Banking System Safer?
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Would Taxing Banks Really Make the Banking System Safer?

David VanHoose
Mercatus Center, 2013
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Economics professor David VanHoose puts forward a vigorous argument against using taxes to control bank behavior and protect the banking system from future shocks. He contends that such measures would prove ineffective in real-world banking. Though some of VanHoose’s assumptions will meet with opposition, getAbstract believes his ideas will trigger discussions on banking tax among finance professionals, regulators and government policy makers.

Take-Aways

  • Proponents of a new tax on credit say that it would force banks to act in the best interests of the system rather than for their own interests.
  • However, this argument fails to consider the unintended consequences such a tax would have on the composition of banks’ assets and liabilities.
  • A tax would encourage banks to reduce lending. It would subject all loans to less internal scrutiny and monitoring, thus undermining the intended benefits.

About the Author

David VanHoose is an economics professor at the Hankamer School of Business at Baylor University.

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