Caribbean Development Bank Policy Brief
Correspondent Banking Relationships (CBRs) exist between banks providing financial services (correspondent banks) and banks receiving those services (respondent banks). CBRs are fundamental to the efficient operation and resilience of the global financial system and, by extension, the Caribbean.
They facilitate the re-allocation of capital in the global financial ecosystem and cross-border payment systems which are essential for international trade. CBRs also enable financial inclusion by providing access to a wide range of globally networked financial services to governments, corporations and ordinary citizens. In this way, they contribute immensely to the economic, financial and social stability of the Caribbean.
However, today regional governments, banks and other stakeholders are justifiably concerned by the high incidence of withdrawals of CBRs by some regionally active correspondent banks. This concern, which is also popularly referred to as “de-risking”, is receiving urgent national, regional and global attention. The decline in CBRs, if left unchecked, will lead to systemic risks in the regions adversely affected and ultimately impact the stability of the global financial system, global trade and global competition. It can be detrimental to the promotion of financial inclusion and increase use of the unregulated and opaque shadow banking system.
The most recent regional response to this issue is a call for Caribbean stakeholders to wage a coordinated relentless campaign against what was described as an existential threat and potentially systemic crisis with cataclysmic ramifications to our regional banking sector.