Let's Talk About Tax: Fixing Bank Incentives to Sabotage Stability
Regulatory capital requirements are in place to improve bank (and systemic) stability, by forcing banks to fund themselves with more loss-absorbent equity. But banks have strong incentives to prefer debt funding to equity funding, and thus to arbitrage regulatory capital requirements. In particular, banks have (often successfully) petitioned regulators to allow them to satisfy regulatory capital requirements with hybrid debt-equity instruments that can be treated as debt for tax purposes. Unfortunately, the Financial Crisis showed that the first generation of these hybrid instruments, including trust preferred securities, did not live up to their promise of promoting bank stability. The next generation of hybrids, the contingent convertible bonds or “cocos”, have the potential to be downright harmful to stability. We therefore need to address bank incentives to create hybrid instruments, and otherwise arbitrage regulatory capital requirements. While regulatory capital requirements are almost always discussed in isolation from tax policy, this Article recognizes that banks’ reluctance to fund themselves with larger cushions of common equity is, in large part, a tax problem. Financial regulators, rather than accepting such tax preferences as a given, should engage with their tax colleagues and revisit the wisdom of tax policies that incentivize reliance on debt funding, and the instability such reliance creates. To that end, this Article takes the first step in fusing together regulatory capital scholarship with the tax literature on reducing debt bias, and proposes that common equity held by banks as regulatory capital should be made tax deductible. The hope is that this will inspire experts in the fields of economics, tax and financial regulation (particularly within the Basel Committee on Banking Supervision) to collaborate in refining this Article’s proposal, so that the efficacy of regulatory capital requirements (and financial stability) can be maximized.
Foolish Revenge or Shrewd Regulation? Financial-Industry Tax Law Reforms Proposed in the Wake of the Financial Crisis
This Comment evaluates four recent proposals to reform tax laws affecting the financial industry. After introducing the proposals, the author provides a theoretical framework for evaluating them and then relies on this framework to explore the benefits and drawbacks of each. Ultimately, the author rejects two proposals that call for imposing financial-transactions taxes and argues that lawmakers should instead focus on plans to either (1) permit cost-of-equity tax deductions or (2) tax the debt held by major financial institutions.
Treatment of sentence production deficits in aphasia: A linguistic-specific approach to wh-interrogative training and generalization
Abstract The present research examines the effects of a linguistic-specific treatment on acquisition and generalization of wh-interrogative structures in two aphasic subjects presenting with deficit patterns consistent with agrammatism. The underlying linguistic representation of sentence structures selected for treatment and generalization was considered based on aspects of Chomsky's (1981) Government Binding (GB) theory, and a linguistic-based, wh-movement treatment strategy was implemented. Using a single-subject multiple-baseline design across behaviours and subjects, the effects of treatment were explored by examining generalization patterns across wh question forms requiring wh-movement (movement of a direct object NP to COMP). Within question form generalization also was evaluated by examining formulation of untrained sentences of varied complexity—with complexity defined in terms of the number of phrasal nodes in the d-structure representation of sentences. Results indicated that for both subjects...