مجازات های مالی و عملکرد بانک Financial penalties and bank performance

1. Introduction Since the financial crisis, the banking industry has been subjected to high financial penalties and increased scrutiny by regulatory agencies. On the one hand, several banking professionals assume that the number and the amount of penalties have lowered bank profitability to an extent that it has created uncertainty concerning the solvency and the business model of banks. For example, the European Systemic Risk Board warned that the scale of misconduct cases and the related penalties may become a possible source of systemic risk (European Systemic Risk Board, 2015). Likewise, the European Banking Authority introduced for the first time costs related to misconduct in its EU-wide stress test in 2014 (European Banking Authority, 2014). On the other hand, several commentators have described the litigation costs as another cost of doing business. Banks with high litigation costs tend to conduct business in areas that are not clearly regulated, which allows them to generate abnormal gains. These abnormal gains may exceed the financial penalties. In addition, many national tax laws allow banks to deduct specific financial penalties from the taxable income, reducing the impact of initially imposed penalties. As a result, shareholders might not be too concerned about the imposed financial penalties. Based on these observations, this paper seeks to answer two main research questions: First, what is the effect of financial penalties on the profitability of banks? Second, how does the stock market evaluate financial penalties? Since only little is known about this matter, our findings help financial authorities, governments, bank managers, and investors to gain a better understanding of the implications of financial penalties on the banking sector. For financial authorities and governments, the results of our study could be valuable because they could be used to assess the deterrent effect of penalties on the profitability of banks. In other words, financial authorities and governments could evaluate whether financial penalties are high enough to prevent future misconduct. For bank management, the findings of the study are likely to be relevant because they may allow them to evaluate whether it is beneficial for them to engage in specific market behavior or to pursue specific strategies. It may also help investors to determine whether the shares of a given bank qualify as an investment. To answer these research questions, we accumulate a unique dataset that contains handcollected information on the amounts and the dates of individual bank fines and settlements between 2007 and 2014. The annual reports of banks have been criticized because they disclose the cost of financial penalties in a non-transparent manner, and there is no common internationally accepted standard for listing these items in reports. To obtain an estimate of financial penalties paid by each bank in a given year, we use different databases of regulatory authorities as well as business information providers and newspaper archives.