BRIDGETOWN – A new study ex­am­in­ing the loss of cor­re­spond­ing bank­ing re­la­tion­ships (CBR) in the Caribbean has found that glob­al banks have re­assessed their in­di­vid­ual busi­ness mod­els, de­cid­ing on dif­fer­ent strate­gies in re­sponse to changes in the macro­eco­nom­ic and reg­u­la­to­ry en­vi­ron­ment that has low­ered the ex­pect­ed prof­itabil­i­ty of cor­re­spon­dent bank­ing.

The study notes that giv­en the var­i­ous dri­vers, there is no “sil­ver bul­let” to solve the prob­lem of with­draw­al of CBRs and that co­or­di­nat­ed ef­forts by var­i­ous stake­hold­ers are called for to mit­i­gate the risk of fi­nan­cial ex­clu­sion and the po­ten­tial neg­a­tive im­pact on fi­nan­cial sta­bil­i­ty.

“Pol­i­cy ini­tia­tives must ad­dress dri­vers re­lat­ed to risk or risk per­cep­tions as well as those re­lat­ed to prof­itabil­i­ty,” the study not­ed.

The lat­est In­ter­na­tion­al Mon­e­tary Fund (IMF) Work­ing Pa­per ti­tled “Loss of Cor­re­spon­dent Bank­ing Re­la­tion­ships in the Caribbean: Trends, Im­pact, and Pol­i­cy Op­tions,” notes that ev­i­dence con­firms that the num­ber of CBRs and val­ue of CBR trans­ac­tions has in­deed fall­en in sev­er­al Caribbean coun­tries over the past few years.

The au­thors of the study note that de­pend­ing on spe­cif­ic coun­try char­ac­ter­is­tics and those of the cor­re­spon­dent and re­spon­dent banks, there’s a full spec­trum of out­comes.

“At one end of the spec­trum, some glob­al banks have broad­ly with­drawn from CBRs world­wide; oth­ers have with­drawn from the Caribbean re­gion or a par­tic­u­lar coun­try (e.g. Be­lize); oth­ers have tar­get­ed in­di­vid­ual banks; and oth­ers have main­tained ser­vices but to a re­strict­ed set of clients of re­spon­dent bank and charged high­er fees”.

Caribbean gov­ern­ments have in the past com­plained about the loss of CBRs and have mount­ed sev­er­al mis­sions to the Unit­ed States in a bid to get a re­ver­sal of the pol­i­cy.

Caribbean coun­tries have al­so tak­en coun­try-spe­cif­ic ef­forts to im­prove com­pli­ance with in­ter­na­tion­al stan­dards and en­hance risk-based su­per­vi­sion even though chal­lenges re­main in en­sur­ing ef­fec­tive im­ple­men­ta­tion of na­tion­al AML/CFT frame­works.

“Nonethe­less, en­hanced in­ter­na­tion­al co­or­di­na­tion and ac­tion by all stake­hold­ers are still re­quired to ad­dress CBR chal­lenge. Home au­thor­i­ties of glob­al banks should con­tin­ue to proac­tive­ly com­mu­ni­cate their reg­u­la­to­ry ex­pec­ta­tions to cor­re­spon­dent banks.

“In­ter­na­tion­al stan­dard set­ters need to be more mind­ful of the un­in­tend­ed con­se­quences on de­vel­op­ing coun­tries of ef­forts to im­prove the re­silience of the in­ter­na­tion­al fi­nan­cial sys­tem. At the same time, the af­fect­ed coun­tries should con­tin­ue to strength­en their reg­u­la­to­ry and su­per­vi­so­ry frame­works, in­clud­ing for AML/CFT to meet rel­e­vant in­ter­na­tion­al stan­dards, with the help of tech­ni­cal as­sis­tance where need­ed,” the au­thors wrote.

They said that re­spon­dent banks need to proac­tive­ly en­gage cor­re­spon­dent banks to give them com­fort on the ad­e­qua­cy of their own cus­tomer due dili­gence, trans­ac­tion mon­i­tor­ing, and AML/CFT frame­works.

“Sim­i­lar­ly, cor­re­spon­dent banks need to be more forth­com­ing to re­spon­dent banks on their ex­pec­ta­tions with re­spect to these is­sues. In­dus­try ini­tia­tives will be cru­cial to fa­cil­i­tate the en­hanced cus­tomer due dili­gence ex­pec­ta­tions and help re­duce com­pli­ance costs. Small re­spon­dent banks in the re­gion should ac­tive­ly ex­plore op­tions, in­clud­ing through merg­ers or oth­er forms of col­lab­o­ra­tion, to bun­dle trans­ac­tions to gen­er­ate more busi­ness vol­ume for cor­re­spon­dent banks and im­prove their own risk man­age­ment process­es.” (CMC)