> Taxation is an ongoing cost. you pay it every year.
Yes, just like you gain the land rent from the land you own every year.
> If I am a bank, and joe blo has a 200k tax bill, and 20k income, [...]
My broker doesn't care about my income one bit when they lend me money: they lend against my stock portfolio. Similar, here you could lend against the real estate. Why would the lender care about income?
> However a normal bank might lend him the money just to receive his land as collateral to take it on when he inevitably defaults. But I thought LVT was about the reduction of land banking, not shifting ownership of land to the banks?
No, not at all. That's a common misconception, especially prevalent amongst fans of LVT.
As I said earlier, the LVT changes no opportunity costs between land uses at all. So if for some reason it's a good idea to 'land bank' without an LVT, then it'll still be a good reason to 'land bank' with an LVT.
However, being able to finance the government with an LVT might have second order effects on other taxes and regulations, that might make land banking less (or even more?) appealing. I don't know, it depends on what else is happening.