June 2021
Senay Agca (George Washington University)
Pablo Slutzky (University of Maryland)
Stefan Zeume (UIUC)
Abstract: We exploit a tightening of anti-money laundering (AML) enforcement that imposed disproportionate costs on small banks to examine the effects of a change in bank composition on real economic outcomes. In response to intensified enforcement, counties prone to high levels of money laundering experience a departure of small banks and increased activity by large banks. This results in an increase in the number of small establishments and real estate prices. Consistent with a household demand channel, wages and employment increase in the non-tradable sector. Last, we document secured lending as a potential driver of this outcome.
JEL Codes: G21, G28
Key Words: Money laundering, Financial Institutions, Real economy, Deposits and lending, Financial crime
