The IMF economists estimate that abolishing the preferential tax treatment of debt would raise average unweighted bank equity by 2.2 to 4.2 percentage points. Even though the authors caution that the effect is likely to be lower for the biggest banks, these numbers are sizable by any measure, especially considering that the proposed Basel III leverage ratio is 3%.
Doing away with the preferential tax treatment of debt could therefore provide a major boon for financial stability. 5. Conclusion  Ladies and gentlemen, debt is like oxygen: indispensable for economic life, but when you overdose on it, you first get high, and then you faint. Air quality regulation has made great strides over the last decades, at least in the advanced countries.