According to the International Monetary Fund (IMF), correspondent banking with global banks allows smaller banks access to the international payments system, facilitating money transfers through transactions such as wire transfers, check clearing and currency exchange. The IMF notes that without these banking relationships,
businesses are cut off from international trade and financing, families are unable to collect remittances
from relatives working abroad, and foreign investors may be unwilling to invest if there is a risk that they will be
unable to repatriate their profits. The threat to Caribbean economies from large-scale withdrawal of correspondent banks was high on the agenda of policymakers attending the most recent High Level Caribbean Forum in Port of Spain, Trinidad and Tobago, last year. “The withdrawal of correspondent banking relationships presents a clear and present danger to the Caribbean,” declared IMF Deputy Managing Director, Tao Zhang, in opening remarks at the forum, which was co-hosted by the IMF and the Government of Trinidad and Tobago.
A survey conducted by the Caribbean Association of Banks shows banks in 12 countries in the region have
experienced loss of correspondent banking. Among them are The Bahamas, Belize, Guyana, Jamaica, Suriname,
Trinidad and Tobago, and countries in the Eastern Caribbean Currency Union. In Belize, the withdrawal
of correspondent banking relationships is systemic, with affected banks’ assets amounting to more than half of
the domestic banking system’s assets. In other countries, the loss of correspondent banking relationships has not
reached systemic proportions, but still presents an urgent threat. Increased regulation of banking systems globally—to address concerns about tax evasion and combat money laundering and the financing of terrorism—has had the unintended consequence of making correspondent banking relationships costlier and less attractive to global banks.Increased enforcement and unclear regulatory expectations present correspondent banks with the
possibility of large fines for noncompliance, particularly in cases where local privacy laws prohibit the sharing
of information about banks’ customers. Thus, the withdrawal of correspondent banking services is seen as
“de-risking” by global banks. Another concern highlighted during the forum is the risk that increased monitoring would push transactions to informal channels, making it difficult to monitor illicit transactions and, in effect, countering anti-money laundering efforts. Furthermore, IMF officials said de-risking was an issue that the institution regarded as very important for its member countries and reaffirmed the IMF’s commitment to helping countries find solutions, including through increased policy dialogue and technical assistance. “We believe a solution to this issue requires dialogue between countries, regulators and banks, and increased information exchange. This can help clarify regulatory expectations, build trust, facilitate capacity building and highlight best practices,” Zhang said. Panelists at the forum expressed a sense of urgency to address the impact of de-risking on the region. They
encouraged policymakers to examine the scope for collective solutions to mitigate the costs to individual countries of introducing measures—such as taking advantage of better technology to facilitate information sharing and reducing the cost of providing correspondent banking services.
