This study presents the progression of the U.S. economic sanctions and their impacts on the targeted countries. This study also empirically investigates the effects of the U.S. financial sanctions on banks and corporates.

The U.S. financial sanctions have evolved from the seizure and freezing of assets subject to sanctions to blocking access to international financial markets. In addition, as the U.S. Dollar is the heart of the global payment and settlement system such as CHIPS or SWIFT, The U.S. can use them to monitor cross-border capital flows and sanction international financial institutes. Financial sanctions can be implemented quickly and can be an effective means to targets. The primary sanctions targets of the U.S. have been Iran, Russia, and North Korea. Sanctions have been negative effects on their economy in terms of economic growth and financial indicators. Recently, they are moving to China as the conflicts between the U.S. and China have been deepened.

Two event studies were conducted to empirically examine the impact of the financial sanctions on banks and corporations. First of all, to analyze the ripple effect on the banking sector, we collect the cases of consent orders by the New York State Financial Services Agency. The banks' stock price that received the consent order significantly drops 10% within one to two years. Under the efficient market hypothesis, stock price represents the potential value of its firm, so the banks lose their intrinsic value due to an increase of de facto monitoring costs. Secondly, we investigate the list of Chinese military companies released by the U.S. Department of Defence. It prohibits U.S. companies and individuals from capital transactions with the listed companies. From the empirical results, the stock price of listed companies, on average, decrease 30% of its price for one year period after being listed.

With the recent extension of U.S.-China conflicts and U.S. financial sanctions on China, Korea would be in a complicated position. Potential risks that Korean companies and financial institutes can be implicated or damaged are increasing if China imposes Chinese sanctions on the U.S. in response to the U.S. sanctions on China. Therefore, Korea must strengthen monitoring of the U.S. and China sanctions and provide the infrastructure to support companies and financial institutes to reduce monitoring costs and potential risks on their business.