A Case for Policy Action
Correspondent banking relationships (CBRs), which enable the provision of domestic and cross-border payments, have been terminated in some jurisdictions following the global financial crisis. In recent years, several countries have reported a reduction in CBRs by global banks.
Pressure on CBRs has been associated with restricted access to financial services by certain categories of customers, business lines, jurisdictions or regions. Survey and other available evidence indicates that smaller emerging markets and developing economies in Africa, the Caribbean, Central Asia, Europe and the Pacific as well as countries under sanctions may be the most affected.
Individual banks may decide to withdraw CBRs based on a number of considerations. Generally, such decisions reflect banks’ cost-benefit analysis, shaped by the re-evaluation of business models in the new macroeconomic environment and changes in the regulatory and enforcement landscape, notably with respect to more rigorous prudential requirements, economic and trade sanctions, antimoney laundering and combating the financing of terrorism (AML/CFT) and tax transparency.
These factors inform banks’ risk and reputational cost perceptions. Further pressures to withdraw CBRs may arise where regulatory expectations are unclear, risks cannot be mitigated, or there are legal impediments to cross-border information sharing. These factors operate concurrently, although their relative significance varies case-by-case.
Staff Discussion Note: SDN/16/06