Publication details
Bank Portfolio Responses to the Spanish Windfall Tax
| Authors | |
|---|---|
| Year of publication | 2026 |
| Type | Peer-reviewed scientific article |
| Magazine / Source | Finance Research Letters |
| MU Faculty or unit | |
| Citation | |
| web | https://www.sciencedirect.com/science/article/pii/S1544612326014613?via%3Dihub |
| Doi | https://doi.org/10.1016/j.frl.2026.110933 |
| Keywords | windfall tax; bank taxation; synthetic control method; credit risk exposure; portfolio reallocation; de-risking |
| Description | This study exploits the 2022 Spanish bank windfall tax announcement as a quasi-experimental setting to examine how banks adjust their asset portfolios in response to a revenue-targeted levy. Using the synthetic control method (SCM), we estimate the effects on portfolio allocation and risk-taking in an environment in which a statutory pass through ban constrains the conventional pricing channel. We find that banks reduced net interest income relative to a ‘synthetic Spain’ through portfolio reallocation rather than an aggregate contraction in lending. This reallocation coincided with a 15.60% decline in credit risk exposure and a shift in liquidity primarily towards assets less exposed to the taxed revenue base. These included held-to-maturity investments and long-term interbank deposits, with a more tentative increase in held-for-trading positions. The findings indicate that revenue based windfall taxation may induce portfolio reallocation accompanied by de-risking, potentially reflecting reduced incentives to maintain riskier exposures. Consequently, such levies may prevent an aggregate credit contraction, but they can alter the composition and risk profile of bank intermediation. |