Money laundering and bank risk: evidence from US banks

We test for a link between bank risk and enforcements issued by US regulators against banks for money laundering (ML) in a sample of 960 publicly listed US banks over 2004-2015. ML-related enforcements are associated with increased bank risk on several measures of risk with the result robust to a variety of estimation methodologies. Moreover, the impact of money laundering on bank risk is accentuated by the presence of powerful CEOs and only partly mitigated by large and independent executive boards.