Frequency vs. Size of Bank Fines in Local Credit Markets

Francesco Marchionne (), Michele Fratianni, Federico Giri and Luca Papi

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2022, vol. 8, issue 3, No 3, 549-583

Abstract: Abstract We examine how banking supervisors affect credit at the local level by charging fines to individual banks. Using a macro approach to capture the direct effect on the fined bank and the indirect effect on the other banks operating in the local credit market, we estimate reputational, reallocation and balance sheet effects on Italian provinces over the period 2005–2016 by a fixed effects model and instrumental variables. Provincial gross bank loans expand after a fine independently of its size. The impact of fine frequency depends on the size of the provincial banking sector, but neither on bank governance/ownership nor crises. No statistically significant evidence supports reputational or balance sheet effects. Instead, our results suggest that it would behoove bank supervisors to favor frequency over size of bank fines. Bank fines seem to work more like a good housekeeping seal of approval, enhancing transparency and effective banking practices.

Keywords: Fine frequency; Fine size; Bank credit; Local markets; Supervision (search for similar items in EconPapers)
JEL-codes: F14 F18 G01 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s40797-021-00161-4

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