Filippo De Marco (Bocconi)
"Banks as Patient Lenders: Evidence from a Tax Reform"
We test whether the composition of bank funding, and the share of deposit funding in particular, affects bank risk-taking and loan maturity. For identification, we exploit a tax reform in Italy that created incentives for households to hold deposits rather than bank bonds. Using geographically disaggregated data on deposits and securities from securities holdings statistics, we first show that the reform led to larger increases (decreases) in term deposits (bank bonds) in areas where households held more bank bonds prior to the reform. Next, relying on the comprehensive Italian Credit Register, we find that the change in funding led banks to increase the maturity of loans to non-financial firms. Moreover, consistent with theories about the role of the government safety net, we find that the effects on maturity and risk-taking are more pronounced for banks that experienced a larger increase in insured deposits.