The paper presented analyzes the implications of using fair values in tax accounts and including unrealized gains and losses on held-for-trading securities in taxable income (fair value taxation) on banks’ asset allocation and risk-taking. Exploiting cross-country and inter-temporal variation in fair value tax regimes and tax rates across 27 countries from 2010 to 2018, the authors find that the inclusion of unrealized gains and losses on held-for-trading securities in taxable income is associated with banks’ investment portfolio choices and risk-taking. On average, banks hold less held-for-trading securities, when the economic significance of fair value taxes increases. This effect is pronounced for banks that report under less discretionary local GAAP for tax purposes, savings banks, and financially constrained banks. The authors also find that banks’ positions in securities not taxed at fair value and cash holdings increase with the economic significance of a fair value tax on held-for- trading securities. Lastly, the authors provide evidence that banks’ operating risk-taking is positively associated with the tax rate when subject to a fair value tax regime.