Do not mention Russia: A theoretical framework for bank penalties due to economic sanction violations and policy implications
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DOIhttp://dx.doi.org/10.21511/bbs.18(2).2023.14
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Article InfoVolume 18 2023, Issue #2, pp. 161-176
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In this paper, penalties to banks violating economic sanctions have been investigated and discussed. This topic has sparked renewed interest and attention following the beginning of the conflict in Ukraine due to the Russian aggression in February 2022 and the ongoing general deterioration in the global economic climate. Thus, based on the experience with penalties to banks for violations of economic sanctions from 2007, a theoretical model has been proposed. It is proposed that this model may be informative in devising the optimal level of penalties based on behavioral characteristics of banks and regulators. The model is based on the economic examination of the motives and incentives for bank misconduct, by drawing on the Shapiro-Stiglitz model addressing typical consequences of asymmetric information in principal-agent models. From a policy perspective, the proposed model also has the potential to provide opportunities for standardization of restrictions posed on banks as a result of bank misconduct. Relevant policy implications concerning penalties are put forward that may be implemented for future considerations, particularly in cases related to violations of economic sanctions.
- Keywords
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JEL Classification (Paper profile tab)C14, G21, K42
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References39
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Tables0
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Figures8
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- Figure 1. Number of penalties in different size categories
- Figure 2. Time series of penalties for economic sanction violations
- Figure 3. Country of origin of the punished banks
- Figure 4. The sanctioned counterparties that the banks did business with
- Figure 5. The number of sanctioned counterparties in individual cases
- Figure 6. Total penalties by individual banks
- Figure 7. The curve showing the optimal level of a penalty
- Figure 8. The equilibrium in the banking sector
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