The forthcoming article “Banking bad? A global field experiment on risk, reward, and regulation” by Michael G. Findley, Daniel L. Nielson, and J. C. Sharman is summarized by the author(s) below.
Do banks follow rules mandating that they police the global financial system to screen out dirty money? In seeking to find out, we formed a variety of shell companies, and through them made solicitations to all the world’s internationally connected banks for corporate bank accounts.
Some of our shell companies posed a high corruption risk, some a high risk of terrorist financing, others suggested tax evasion, while still others were innocuous. Global and national rules state that banks are meant to apply a “risk-based approach” in differentiating between their corporate customers, applying more scrutiny to high- than low-risk approaches. After making thousands of email solicitations, however, we found that these rules don’t work: in practice, banks only marginally differentiated—if they differentiated at all—between high- and low-risk corporate customers in the rate at which they engaged, offered their services, or properly identified shell companies owners. We test three models against these results.
A standard rational utility model suggests that banks weigh risk and reward in responding to customers. This perspective doesn’t explain why banks were insensitive to risk, however, nor why banks were just as insensitive to variations in the amount of money offered across different solicitations. A behavioral economics perspective is consistent with some of the results, but in some cases would predict larger substantive effect sizes than we observed. Banks’ lack of responsiveness to both risk and reward may be consistent with an institutionalist view that banks as organizations fall into habits and routines, standard operating procedures or “organizational scripts.”
Finally, we argue that in judging the ethics of field experiments, researchers should focus on enhancing the public good and the merits of “studying up” in holding rich and powerful actors to account.
About the Author(s): Michael G. Findley is the Erwin Centennial Professor of Government at the University of Texas at Austin, Daniel L. Nielson is a Professor of Government at the University of Texas at Austin, and J. C. Sharman is the Sir Patrick Sheehy Professor of International Relations in the Department of Politics and International Studies at Cambridge. Their research “Banking bad? A global field experiment on risk, reward, and regulation” is now available in Early View and will appear in a forthcoming issue of the American Journal of Political Science.
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