Financial Crimes as a 'Cost of Doing Business': The Insufficient Deterrence of Fines and Settlements Post-GFC

• In Event: Corruption, Compliance, and the Politics of Accountability

Abstract

The 2007-08 Global Financial crisis was caused by risky lending practices in the subprime mortgage market and excessive risk-taking by financial institutions due to minimum regulatory oversight. This research examines the financial penalties imposed on corporations in the wake of the GFC and argues that for many large institutions, these penalties were seen as a mere cost of doing business, rather than a effective deterrent. This study incorporates data on the amounts of fines and settlements imposed on major corporations involved in the GFC (e.g., JPMorgan Chase, Morgan Stanley, Goldman Sachs) along with their incidents of illegal activities (e.g. securities fraud, market manipulation) and their corresponding financial performance (revenues, profits, stock prices) before, as well as after the GFC when fines and settlements were imposed. This study examines (1) whether financial penalties imposed after the GFC were enough to deter future corporate misconduct. And (2) whether there should be more severe or different forms of punishment such as executive imprisonment, and stricter regulations for those corporations involved in financial crime so that those corporations would alter their behaviour and way of doing business. This analysis is conducted through regression modelling and addresses policy/regulatory outcomes in the financial industry.

Author

• Thamali Ranasinghe, The University of Queensland