The Effects of Sanctions on the Lending Policy and the Value of International Banks: the Case of Iran

Hundt Steffen () and Horsch Andreas ()
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Hundt Steffen: Investment & Finance, Technische Universitat Bergakademie Freiberg, Freiberg, Germany
Horsch Andreas: Investment & Finance, Technische Universitat Bergakademie Freiberg, Freiberg, Germany

Review of Middle East Economics and Finance, 2018, vol. 14, issue 3, 13

Abstract: After being in force for several years, sanctions against Iran were partly lifted on 16 January 2016, reopening business options for the financial industry. This paper investigates whether a breach of internationally imposed economic sanctions had a negative impact on the value of a bank that decided to implicitly or explicitly violate those sanctions. Using event study methodology, our analysis provides evidence that a breach of Iran-related sanctions by foreign banks caused considerable wealth reductions for their shareholders who finally bear the corresponding fining-costs. The results also show that bank shareholders do not perceive the lifting of sanctions as being good news, implying that they lost faith in their bank’s ability to establish a sufficient compliance and due diligence system for Iran-related transactions. Finally, the study shows that the announced fining for a breach of sanctions does not induce spillover effects to non-fined banks. Thus, the study provides important insights on reasons of the current shortage of foreign lending toward Iran.

Keywords: Iran; compliance; sanction; credit crunch; event study; abnormal returns (search for similar items in EconPapers)
JEL-codes: F51 G14 G15 G21 G32 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/rmeef-2018-0010

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