A new bank levy could prompt Australian banks to adjust their capital structure, and may ultimately undermine the prudential objective of increasing the capital and bail-in debt buffers that banks hold against the possibility of failure.

The proposed levy, which was put before Parliament on May 30, imposes an annual tax of 0.06% on certain bank liabilities. These include senior debt, certificates of deposit and Tier 2 capital instruments, but exclude liabilities that are most important for bank