Drug Money and Bank Lending: The Unintended Consequences of Anti-Money Laundering Policies

Serie

• Working Papers

Resumen

• CWe explore the unintended consequences of anti-money laundering (AML) policies. For identification, we exploit the implementation of the SARLAFT system in Colombia in 2008, aimed at controlling the flow of money from drug trafficking into the financial system. We find that bank deposits in municipalities with high drug trafficking activity decline after the implementation of the new AML policy. More importantly, this negative liquidity shock has consequences for credit in municipalities with little or nil drug trafficking. Banks that source their deposits from areas with high drug trafficking activity cut lending relative to banks that source their deposits from other areas. We show that this credit shortfall negatively impacted the real economy. Using a proprietary database containing data on bank-firm credit relationships, we show that small firms that rely on credit from affected banks experience a negative shock to investment, sales, size, and profitability. Additionally, we observe a reduction in employment in small firms. Our results suggest that the implementation of the AML policy had a negative effect on the real economy.

autores

• Slutzky, Pablo
• Villamizar-Villegas, Mauricio
• Williams, Tomas

fecha de publicación

• 2019

Área temática

• I15 - Salud y desarrollo económico
• O15 - Recursos humanos; Desarrollo humano; Distribución de la renta; Migraciones
• Q12 - Análisis microeconómico de las explotaciones agrarias, explotaciones familiares y mercados de inputs agrarios

Enfoque geográfico

• Colombia  Country
• South America  Continent

Líneas de investigación

• Bank Lending
• Economic Growth
• Financial System
• Liquidity
• Money Laundering
• Organized Crime

Issue

• 2019-5