Bank Secrecy and Capital Flows: Does the International Stigma Matter?

34 Pages Posted: 12 Jul 2013

See all articles by Olga Balakina

Olga Balakina

Leibniz Institute for Financial Research SAFE

Donato Masciandaro

Bocconi University - Department of Economics; Bocconi University - Department of Economics (ECO)

Date Written: July 1, 2013

Abstract

This study analyses the cross border capital flows in order to verify existence and direction of the so called stigma effect: Is the soft regulation against banking secrecy promoted by the international organization effective? We test if the FAFT listing-delisting events are effective sticks and carrots for the targeted countries in influencing their cross border flows. The tests are based on a theoretical framework, where the stigma effect holds if doing business with a listed country produces non linear monetary and/or reputational costs. We applied our model on 126 countries worldwide in the period 1996-2007 using annual panel data. We find evidence that the stigma mechanism can influence the banking flows, provided that some conditions hold. The relevance of the stigma effect seems to depend on the one side on the efficiency of the international capital markets and on the other side on specific features of the listed/delisted country: regulatory lightness, banking profitability, growth per capita.

Keywords: bank secrecy, international capital flows, name and shame regulation, money laundering

JEL Classification: F21, K42

Suggested Citation

Balakina, Olga and Masciandaro, Donato, Bank Secrecy and Capital Flows: Does the International Stigma Matter? (July 1, 2013). Paolo Baffi Centre Research Paper No. 2013-138, Available at SSRN: https://ssrn.com/abstract=2292980 or http://dx.doi.org/10.2139/ssrn.2292980

Olga Balakina

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - Department of Economics (ECO) ( email )

Via Gobbi 5
Milan, 20136
Italy

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