DEFINITION of 'Bank Levy'
1) A type of taxation system on financial institutions, in which banks are forced to pay government taxes over and above any normal corporate taxes they may incur. This is done in order to maintain financial discipline and prevent outlandish spending, bonuses or possible overly risky behavior. Bank levies are generally viewed as punishment to financial institutions.
2) When a bank account is frozen due to a creditor trying to get the debtor to repay its debt. A bank levy can occur due to either unpaid taxes or unpaid debt. The IRS usually uses this method the most, but other creditors can use this method as well.
BREAKING DOWN 'Bank Levy'
1) Bank levies came into prominence following the 2008 global financial crisis, when many of the world's financial institutions were bailed out by their national governments to avoid a potentially even more disastrous outcome than what had already occurred. Subsequently, many economic leaders and pundits called for a tax on banks to prevent excessive employee bonuses, especially considering that many of the financial institutions would have ceased to existed had it not been for publicly funded government bailouts.
2) A bank levy is not a one-time event. A creditor can request a bank levy as many times as needed, in order to be repaid the debt due. Most banks charge a fee to their customers for processing a levy on their account. Some types of accounts, such as social security, income cannot be levied.