| Abstract: |
This paper examines whether the Pillar Two Global Minimum Tax reduces bank
profitability and regulatory capital, and for which banks the effects are
strongest. We use a quarterly exposure-based differencein differences design
around 2024Q1, where treatment intensity is defined by pre-2024 low-tax
exposure among in-scope banks. The analysis uses a quarterly bank-level panel
for 2014-2024 and exploits predetermined cross-sectional heterogeneity in
low-tax exposure while controlling for bank and quarter fixed effects. The
headline estimates show that post-2024 profitability and capital buffers
decline more for high-exposure banks: profit after tax falls by about 2.2
basis points of assets per quarter and Tier 1 buffers by about 0.09 percentage
points in the baseline specification. Higher low-tax exposure is not
interpreted as vulnerability per se. The downside channel is concentrated
where high pre-reform low-tax exposure coincides with limited initial capital
headroom: event-study, placebo, matched-sample, and split-sample evidence all
point to larger post-2024 capital-buffer compression for thin-buffer banks.
Overall, the results indicate modest average effects but meaningful tail risk
for banks that combine high minimum-tax exposure with thin initial capital
buffers. |