What impact does organised crime have on local economies? Drawing on research from Italy, Bruno Buchetti, Michele Fabrizi, Elisabetta Ipino, Ixart Miquel-Flores and Antonio Parbonetti show that when organised criminal networks are dismantled, bank lending to legitimate firms increases substantially, creating clear economic benefits.
Organised crime continues to be one of the most insidious threats to Europe’s financial and institutional integrity. While its social and political impacts are well-documented, we still know relatively little about how criminal infiltration distorts financial intermediation and stifles local economic growth.
In a recent study, we use detailed supervisory credit data from the European Central Bank, combined with judicial records of anti-Mafia police operations in Italy, to quantify the economic effects of dismantling criminal firms. Our findings are stark: when criminal enterprises are removed from local economies, bank lending to legitimate firms increases substantially.
Importantly, this reallocation of credit is not just a financial reshuffle – it leads to real productivity gains in areas where anti-Mafia interventions have been pursued. This suggests that targeted law enforcement can have transformative economic effects.
What happens when criminal firms are dismantled?
Between 2019 and 2021, Italian authorities conducted dozens of police operations targeting Mafia-affiliated businesses. These operations, governed by Article 416-bis of the Italian Penal Code, resulted in arrests, asset seizures and public disclosure of criminal affiliations. We match these judicial records with granular credit data from the ECB’s AnaCredit database to observe how local lending patterns changed following each intervention.
Our empirical approach isolates the causal effects of these operations using a stacked difference-in-differences strategy. We compare lending and productivity outcomes in treated municipalities (and their neighbours) to similar municipalities in the same province that were not exposed to enforcement during our sample period.
Lending rebounds – especially where Mafia control was strongest
We document a clear intermediation effect: following anti-Mafia interventions, bank lending to local legitimate firms increases by 0.8% on average – and up to 2.1% in municipalities with high levels of prior Mafia infiltration. These effects suggest that criminal enterprises had been crowding out legitimate businesses from access to finance, either through coercive control or via reputational contamination.
Figure 1: Lending effects after anti-Mafia interventions
Note: The figure shows diagnostic parallel trends in lending behaviour (loans) for the staggered adoption of anti-Mafia police actions. Point estimates are displayed along with 90% confidence intervals. The baseline (omitted) reference period is one quarter prior to the police action in each municipality, indicated by the solid vertical line in the plot.
Crucially, we find that the increase in credit after anti-Mafia interventions is persistent. As Figure 1 shows, lending expands steadily over time in treated areas (areas where anti-Mafia interventions have taken place) with no pre-treatment differences between treated and control municipalities – validating our identification strategy.
The cost of transparency: interest rates and perceived risk
Dismantling Mafia-linked firms also reveals uncomfortable truths. Banks respond to this newfound transparency by modestly increasing interest rates – by around 0.018 percentage points on average. This “information effect” reflects an updated assessment of local credit risk. With criminal ties now exposed, financial institutions become more cautious, especially in areas where criminal influence had long gone undetected.
Interestingly, this repricing is not uniform. Foreign and non-local banks react more strongly than local lenders. The reason? Local banks possess richer soft information – relationship-based insights about borrowers that allow them to distinguish between risky and safe firms even in the wake of public shocks.
Real economic dividends: productivity gains across the board
Beyond credit reallocation, we find tangible improvements in economic performance. Productivity increases in municipalities affected by anti-Mafia enforcement, especially where criminal firms had previously engaged in rent extraction and coercive practices. In other words, when organised crime is removed from the economy, resources are reallocated toward more efficient and competitive firms.
These results support the view that crime suppression is not just a legal imperative but also a lever for productivity and growth. Removing criminal distortions fosters fair competition, reduces informal barriers to investment and enhances market efficiency.
Local banks as a stabilising force
One key policy insight from our study is the importance of embedded, relationship-based banking. Local banks, thanks to their proximity and ongoing relationships with clients, are better able to weather the uncertainty that follows criminal exposure.
While non-local banks may react to perceived risks with blanket caution, local institutions can make more nuanced credit decisions, ensuring that legitimate businesses are not unfairly penalised. This finding reinforces the broader literature on the value of soft information in banking, particularly in environments with weak institutions or information voids.
Policy implications
Our research has several implications for policymakers and financial supervisors. First, it shows that targeted enforcement pays off. Anti-Mafia operations generate clear and measurable economic benefits. They not only restore rule of law but also unlock new credit flows and boost productivity.
Second, transparency can be disruptive but is worth it. Revealing criminal connections introduces temporary frictions, particularly for less-informed lenders. These can be mitigated with better risk-sharing and supervisory guidance. A third implication is that local banks matter. The differentiated response between local and foreign lenders highlights the importance of maintaining strong local banking networks that can complement supervisory enforcement with qualitative insights.
Finally, data infrastructure is crucial. Without granular credit and firm-level data, our study would not have been possible. Policymakers should invest in richer, interconnected data systems that enhance transparency and allow for evidence-based interventions.
The benefits of tackling organised crime
Organised crime undermines more than just security – it distorts markets, suppresses competition and weakens financial trust. But our research shows that removing criminal firms through judicial action can help reverse these effects. Lending increases, productivity improves and legitimate firms gain breathing space to grow.
Law enforcement and financial regulation are often viewed as separate spheres, but they are deeply intertwined. As Europe strengthens its anti-money laundering framework and builds institutions like the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA), it is crucial to recognise the broader economic benefits of tackling organised crime – not just for justice, but for growth, inclusion and resilience.
For more information, see the authors’ accompanying ECB Working Paper.
Note: This article gives the views of the authors, not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured image credit: Massimo Todaro / Shutterstock.com
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