The Weight of Compliance: Anti-Money Laundering Enforcement, Bank Composition, and Lending

68 Pages Posted: 10 Apr 2020 Last revised: 19 Dec 2023

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: August 30, 2023

Abstract

This paper examines the impact of strengthened anti-money laundering (AML) enforcement on the US banking sector. We find that the increased compliance burden on small banks results in a shift in bank composition and lending behavior. Affected regions witness reduced activity by small banks and a significant rise in activity by large banks. Large banks expand lending to small businesses through CRA and SBA programs and to households through secured lending, compensating for the reduced lending by small banks, ultimately maintaining overall credit supply. Additional findings suggest positive economic effects, including increased wages and employment in the non-tradable sector and an increase in the number of small businesses.

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, The Weight of Compliance: Anti-Money Laundering Enforcement, Bank Composition, and Lending (August 30, 2023). 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 )

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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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