Global Experiment: Banks Respond to Risk, Not Bigger Payoffs

📧 What Was Tested

This study examines whether banks adjust willingness to onboard corporate clients based on risk and reward. Competing predictions from expected utility, behavioralist, and institutionalist accounts are evaluated using a global field experiment.

🌍 How the Test Worked

A dozen companies located across multiple countries were used as fictional corporate clients. Over 15,000 email solicitations were sent to roughly 5,000 internationally connected banks to request corporate accounts. Treatments randomized two features of each solicitation:

• Risk profile tied to the company’s country-level associations with corruption, terrorism, and tax evasion.
• Promised reward signaled by stating differing amounts of expected business revenue.

🔎 What Was Measured

Outcomes focused on two observable behaviors by banks:

• Rate at which banks offered to open accounts.
• Compliance with customer identification rules (e.g., KYC procedures).

📈 Key Findings

• Banks were moderately responsive to the risk manipulations: riskier country associations reduced account offers and compliance in detectable ways.
• Banks did not respond to higher stated revenues; rewards had no measurable effect on offers or identification compliance.
• The magnitude of the risk effects was small, indicating limited practical impact.
• These results provide mixed evidence for expected utility and behavioralist models and offer suggestive support for institutionalist explanations emphasizing rules, norms, or reputational constraints.

⚖️ Why It Matters

Findings imply that global banks do register country-linked risk signals but are not easily swayed by potential revenue gains. Small effect sizes temper expectations about market-based incentives alone improving compliance. The results bear directly on theories of bank behavior and on the design of regulation and enforcement aimed at improving corporate transparency.