Anti-Money Laundering Enforcement, Banks, and the Real Economy

58 Pages Posted: 10 Apr 2020 Last revised: 9 Oct 2020

See all articles by Senay Agca

Senay Agca

George Washington University - School of Business, Department of Finance

Pablo Slutzky

University of Maryland - Robert H. Smith School of Business

Stefan Zeume

University of Illinois at Urbana-Champaign

Date Written: October 2, 2020

Abstract

We exploit a tightening of anti-money laundering (AML) enforcement that imposed disproportionate costs on small banks to examine the effects of a change in bank composition towards larger banks on real economic outcomes. In response to intensified AML enforcement at the end of 2012, counties prone to high levels of criminal activity in the form of money laundering experience a withdrawal of small banks and increased activity by large banks. This change in bank composition results in an increase in the number of small establishments and real estate prices. Wages and employment increase in the non-tradable sector, consistent with a household demand channel. Increased secured lending through mortgages is one potential driver of this result, whereas lending through the Community Reinvestment Act (CRA) and the Small Business Administration (SBA) are not.

Keywords: Money laundering, Financial Institutions, Real economy, Deposits and lending, Financial crime

JEL Classification: G21, G28

Suggested Citation

Agca, Senay and Slutzky, Pablo and Zeume, Stefan, Anti-Money Laundering Enforcement, Banks, and the Real Economy (October 2, 2020). Available at SSRN: https://ssrn.com/abstract=3555123 or http://dx.doi.org/10.2139/ssrn.3555123

Senay Agca

George Washington University - School of Business, Department of Finance ( email )

2201 G Street
Funger Hall 505
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United States
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HOME PAGE: http://sites.google.com/site/senayagcaweb/

Pablo Slutzky (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Stefan Zeume

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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