This investigation exploits a newly built database, which merges the balance sheets data of Italian banks with data on the civil penalties inflicted by the main Italian Supervisory Authorities (i.e. Bank of Italy and Consob) in the last decade. This investigation evaluates the effect of the...

Disentangling the direct causal effect that sanctions exert on bank performance from the indirect through default risk, we show that a trade-off exists for regulators between banks' performance and stability in Italy. Two key findings provide evidence for the nontriviality of the return-risk...