In this Financial Policy Brief, Professor Kevin Davis examines the major bank levy introduced in the 2017 Budget. The announcement of a six basis point levy on a subset of bank liabilities looks arbitrary, and is certainly politically opportunistic. But it could be rationalised as a response, albeit probably not the best response, to offsetting a number of distortions in Australia’s banking market.

The government, however, has not really spelt out a coherent explanation of the rationale for the levy. The levy will certainly have consequences for bank pricing, forms of funding and competition – and will interact in complex ways with other prudential regulatory changes in the pipeline.

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This FPB was prepared by Professor Kevin Davis, Research Director at the Australian Centre for Financial Studies.

The ACFS Financial Policy Brief series provides independent analysis and commentary on current issues in financial regulation, with the objective of promoting constructive dialogue among academics, industry practitioners, policymakers and regulators and contributing to excellence in Australian financial system regulation.

To read more papers in the FPB series, click here.

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