A decline in correspondent banking relationships is underway worldwide, to the detriment of some vital financial flows such as remittances.A World Bank survey found three-quarters of large banks said "the number of correspondent accounts they hold for other banks had declined between end-2012 and mid-2015."
The Financial Stability Board summarised the survey in a report on correspondent banking over the weekend."The reductions in numbers varied considerably, from less than five per cent to more than half in the case of one bank," the FSB said.It said this retrenchment "does not appear to be offset by expansions in services from global competitors and only one of the large banks surveyed reported an increase, of limited magnitude. "Similarly, on the respondent bank side, a majority of local and regional banks reported a decline in the scale and breadth of their foreign correspondent banking relationships."The regions most affected are the Caribbean, Eastern Europe & Central Asia, East Asia Pacific, especially small jurisdictions with significant offshore banking activities and high risk jurisdictions."In 2014, inflows from remittances were equivalent to more than ten per cent of GDP in 28 countries, and more than 20 per cent for nine of them, the World Bank has found.The FSB cautioned that "the loss of correspondent banking services can create financial exclusion, particularly where it affects flows such as remittances which are a key source of funds for people in many developing countries."It said products and services identified as being most affected by the withdrawal of correspondent banking included: cheque clearing, clearing and settlement, cash management services, international wire transfers and also trade finance. "The customers that bore the brunt of the reduced provision of correspondent banking services are money transfer operators and other money services businesses (including remittance providers), small and domestic banks and small and medium domestic exporters."The FSB also observed that "international wire transfers are the product incurring the largest decline."The FSB was careful to make clear that "risk appetite and profitability" are among drivers of these trends.However, 95 per cent cited  "concerns about money laundering/terrorism financing risks" as the most important drivers."