TY - JOUR

T1 - Known unknowns: How much financial misconduct is detected and deterred?  

AU - Ashton, John

AU - Burnett, Tim

AU - Diaz Rainey, Ivan

AU - Ormosi, Peter

PY - 2021/9

Y1 - 2021/9

N2 - Have financial businesses changed their behaviour in the aftermath of global financial crisis? We address this question by introducing a new and more parsimonious method to quantify the level of financial misconduct and apply this to financial offences between 2004 and 2016. This exercise allows us to investigate whether Capture-Recapture methods can be deployed to handle problems of partial observability and how they compare to previous methods set out to achieve the same goal. In our two stage approach, first, we estimate the rate at which offending businesses are detected, then we look at how the number of detected offenders changed after 2010, and use these two layers of information to make inferences on the deterrent effect of financial regulation. Our results offer evidence that a drop in the number of detected offences post-global financial crisis was driven largely by improved deterrence.

AB - Have financial businesses changed their behaviour in the aftermath of global financial crisis? We address this question by introducing a new and more parsimonious method to quantify the level of financial misconduct and apply this to financial offences between 2004 and 2016. This exercise allows us to investigate whether Capture-Recapture methods can be deployed to handle problems of partial observability and how they compare to previous methods set out to achieve the same goal. In our two stage approach, first, we estimate the rate at which offending businesses are detected, then we look at how the number of detected offenders changed after 2010, and use these two layers of information to make inferences on the deterrent effect of financial regulation. Our results offer evidence that a drop in the number of detected offences post-global financial crisis was driven largely by improved deterrence.

KW - misconduct behaviour

KW - deterrence

U2 - 10.1016/j.intfin.2021.101389

DO - 10.1016/j.intfin.2021.101389

M3 - Article

VL - 74

JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

SN - 1042-4431

M1 - 101389

ER -