Bank capital and the minimum corporate tax

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 difference-in-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.