A recently published World Bank report confirms that international banks are restricting or terminating relationships with other financial institutions.

The report entitled Withdrawal from Correspondent Banking; Where, Why, and What to Do About It, reveals that large banks in particular are limiting or terminating foreign correspondent banking relationships and closing accounts.

De-risking

The World Bank wanted to find out whether decisions being taken by banks were for business or risk-management reasons or as a result of ‘de-risking’.

Roughly half the banking authorities and slightly more local or regional banks surveyed indicated a decline in correspondent banking relationships.

For large international banks the figures are significantly higher at 75 per cent.

Impacts and drivers

The products and services identified as being most affected by the withdrawal of correspondent banking relationships are trade finance, international wire transfers, cheque clearing and settlement.

The drivers of the decline in correspondent banking relationships can be divided into

two groups of causes: those that are regulatory and risk related and those where the decision to terminate a correspondent banking relationship is made for purely commercial reasons.

Recommendations

The report calls on policymakers, regulators and banks to continue monitoring the environment, to clarify regulatory expectations, and to respond to misperceptions that may result in excessively risk-averse behaviour.

Overall, the World Bank concludes that there is work to be done to address the complementary objectives of promoting financial inclusion and increasing the integrity of the financial system.

The full report, Withdrawal from Correspondent Banking; Where, Why, and What to Do About It can be found here.

Categories: Trade Based Financial crimes News