Catch the Thief! Fraud in the U.S. Banking Industry

Abstract

Little is known about fraud in the financial services sector. Using a rich supervisory dataset, this study dissects fraud at large U.S. banking organizations. We examine the different categories of fraud and their materiality, the recovery from fraud, the time from fraud occurrence to fraud discovery and accounting. We quantify exposure to fraud and study the determinants of fraud at the banking organization level. Lastly, we document a significant effect of fraud on bank credit intermediation. Overall, our analysis provides new, detailed evidence on fraud in the U.S. financial services industry, and its costs and consequences.

Keywords: Banking; Bank Holding Companies; Fraud; Operational Risk; Credit Intermediation

JEL Classification: G21, G28, G29