Abstract/Summary

This paper studies how the elimination of the corporate tax bias on bank leverage affects banks' credit provisioning using a quasi-natural experiment, the introduction of an allowance for corporate equity (ACE) in Belgium. We find that affected banks increased their contribution within cross-border syndicated loan facilities relative to other foreign banks, and that this effect was stronger for relatively safe borrowers. We estimate that Belgian bank-led loans had on average 20–50 basis points lower spreads when ACE was in effect. Finally, our results suggest a relatively large, positive credit supply effect domestically.