The paper “Financial Penalties and Bank Performance” has been accepted for publication in the Journal of Banking and Finance (VHB-JOURQUAL3: A). The paper provides a detailed study of the impact of financial penalties on the performance of banking firms. Since the financial crisis, the banking industry has been subjected to high financial penalties and increased scrutiny by regulatory agencies. On the one hand, several banking professionals assume that the number and the amount of penalties have lowered bank profitability to an extent that it has created uncertainty concerning the solvency and the business model of banks. On the other hand, several commentators have described the litigation costs as another cost of doing business. Banks with high litigation costs tend to conduct business in areas that are not clearly regulated, which allows them to generate abnormal gains. These abnormal gains may exceed the financial penalties. In addition, many national tax laws allow banks to deduct specific financial penalties from the taxable income, reducing the impact of initially imposed penalties. As a result, shareholders might not be too concerned about the imposed financial penalties. The paper is part of a larger project studying the impact of regulation and penalties on the financial sector.