Why Europe Is Targeting Bank Profits—and What Italy’s 5% Levy Could Raise

European banks’ strong earnings have made them an increasingly visible target for governments looking to close budget gaps without raising broad-based taxes or cutting spending. Debate has intensified in the UK, France, Portugal, Sweden and Italy, where policymakers face a politically sensitive question: how much of banks’ interest-rate-driven profit should be redirected to public budgets? 3

Italy is at the center of the latest round of proposals. The League party wants a three-year, 5% annual contribution from the country’s 10 largest banks as part of the 2027 budget process. The proposal remains unlegislated, however, and important details—including the precise tax base, scope and possible offsets—have not been set out. 211

Why banks are an attractive fiscal target

Higher interest rates improved many banks’ net interest income, helping European lenders sustain unusually strong profitability. That makes banks a useful political target when governments need revenue: the sector can be portrayed as benefiting from an environment that has also increased borrowing costs for households and businesses. 315

The UK illustrates the scale of the political case. HSBC, NatWest, Barclays and Lloyds generated a combined £200 billion in pretax profits over the previous five years, according to reporting cited in the European windfall-tax debate. 8

That does not mean the policy case is settled. Banks argue that additional taxes can reduce lending capacity, investment and a country’s attractiveness as a financial center. In the UK, a new windfall tax would sit on top of corporation tax, the banking surcharge and the existing bank levy, adding to an already complex tax structure.

Italy’s proposed 5% levy: what is known

The League’s proposal would apply a 5% annual levy to profits at Italy’s 10 largest banks for three years, intended to support public finances through the 2027 budget. 2

The party has put the potential proceeds at €2 billion to €3 billion. That is an estimate, not an official forecast embedded in draft legislation, so it should not be treated as a guaranteed annual or three-year yield until the tax design is published. 711

The proposal is narrower than a sector-wide tax: it is aimed at the largest lenders and based on profits. It also differs from Italy’s earlier one-off approach. In 2023, Italy introduced a 40% tax on “excess” net interest income—defined against a 2021 benchmark—during the period of unusually high rates. 15

Italy has also recently sought contributions from domestic banks and insurers through other budget measures. In 2024, the government said its plans would raise €3.5 billion from the financial sector for health services and vulnerable people, showing that banking has already become a recurring source of fiscal-policy attention. 4

How it compares with other European models

There is no single European bank-tax model. The major distinction is the tax base: governments may tax profits, revenues, liabilities or specific financial transactions.

• Profit-based windfall taxes: Italy’s proposed 5% charge would fall on profits at its largest banks. Spain’s recent model used a 4.8 percentage-point surtax on banks’ net revenue for 2023–25, and the government indicated it intended to make that surcharge permanent. 15
• Liability-based stability levies: Portugal has had a bank levy since 2011, based on total liabilities net of equity and subordinated debt; it also applies a solidarity surcharge. Sweden’s bank levy similarly uses liabilities net of equity and insured deposits as its base. 112
• Existing taxes plus potential new ones: UK banks already face a 25% corporation-tax rate, a 3% banking surcharge on relevant profits above a £100 million group allowance, and a bank levy. Any new windfall tax would be an addition rather than a replacement.
• Financial-transaction taxes: France’s system is different again: it applies a tax to purchases of shares in qualifying large listed companies and a separate charge on certain high-frequency trading. It is not a direct tax on bank profits.

This variety matters because identical headline rates can produce very different outcomes. A levy on liabilities can apply even when profits weaken; a profit tax moves more directly with earnings; and a revenue-based tax can bite even when margins or credit losses reduce bottom-line profit.

Revenue: what can and cannot be estimated

Italy’s €2 billion to €3 billion estimate is the clearest current figure for its proposed 5% levy, but the lack of legislative detail makes a robust three-year total impossible to calculate. 711

Elsewhere, public estimates vary with the design. Sweden’s Social Democrats have proposed a temporary tax on banks’ net interest income that they estimate would raise about 12.6 billion kronor, or roughly $1.3 billion; Citi estimated the levy could equal as much as 9% of Swedish banks’ 2027 pretax profit.

Spain’s 2022 windfall-tax plan was designed to raise €3 billion from banks over two years, while its later structure imposed the 4.8% surcharge on domestic bank revenue above a stated threshold. 815

A Europe-wide total would be misleading: proposals are at different stages, tax bases differ, and several measures remain contested rather than enacted. The evidence supports the conclusion that the revenue hunt is broad, not that there is one reliable combined figure for Europe.

The political disagreements

Supporters frame bank taxes as a targeted contribution from companies benefiting from high-rate conditions. Italy’s League has said bank funds could support families, businesses and security measures, while its economy minister has argued that the sector is affected by rents and limited competition. 7

Opponents focus on the risk of capital leaving, lower investment and costs being passed to borrowers. In Sweden, the opposition’s proposed temporary bank tax has drawn warnings that it could push up household mortgage costs. In the UK, industry representatives have warned that additional taxation could damage lending, investment and the country’s financial-center competitiveness.

France’s argument is embedded in a wider budget battle. National Rally leader Jordan Bardella has said his party would oppose tax increases on households and businesses, underscoring how difficult it may be to build support for new fiscal measures even when governments face large deficits. 17

What policy uncertainty means for investors

The direct cost of a temporary levy is only part of the investment question. Investors also need to assess whether a government will treat the measure as a one-off crisis response, extend it repeatedly, or redesign it after political pressure.

Italy’s previous bank-tax episode demonstrated why clarity matters. Its 2023 windfall-tax announcement was followed by a market rout and a rapid clarification that capped the levy at 0.1% of bank assets; the Treasury then expected to collect less than €3 billion. 16

For current proposals, the key variables are the duration, taxable base, thresholds and whether payments can be offset against other taxes. Scope Ratings judged the planned Italian levy unlikely to materially weaken banks’ credit profiles, but said it could weaken investor appetite and encourage more consolidation. 11

The central takeaway is straightforward: strong profits make banks a tempting source of public revenue, but uncertain tax policy can quickly become an earnings and valuation risk. For investors, the headline tax rate is less important than whether governments create a clear, limited and predictable framework.