Bank Capital Structure Responses to the Post-Crisis European Bank Levies
Excessive leverage in financial institutions is widely regarded as the main reason why the collapse of Lehman Brothers in August 2008 triggered a global financial crisis. Losses quickly wiped out the equity of many banks and uncertainty about the solvency of counterparts caused interbank markets to freeze. To avoid a collapse of the entire financial system, many banks were recapitalized with public funds at a staggering cost. An important post-crisis policy objective is to ensure that banks are in a better position to absorb adverse shocks in the future.