July Editor’s Choice: “Banks as patient lenders: Evidence from a tax reform”

July 2021 Editor’s Choice: Banks as patient lenders: Evidence from a tax reform, by Elena Carletti, Filippo De Marco, Vasso Ioannidou, and Enrico Sette.

New evidence on how retail deposits affect bank lending! Consistent with seminal theories in financial intermediation, the demandable nature of the deposit contract is crucial for banks’ ability to provide liquidity (credit lines) and long-term credit to the real economy. To obtain exogenous variation within the same class of investors, the paper exploits a tax reform in Italy in 2011, which induced households to substitute their holdings of bank bonds with deposits.