This makes it attractive for a company to use more debt financing and less equity capital than would be desirable from a social point of view. Of course, this distortion exists for non-financial corporations as well.
Yet in the financial sector it is more troublesome, because tax considerations do not just have an effect on the funding choices, they also stimulate the design of tax-driven financial products. Such products may add little economic value, but create leverage and complexity, increasing vulnerabilities in the financial system and making them more difficult to monitor.