Over the past decade, many banks have limited or terminated their correspondent banking relationships (CBRs) to a variety of regions, jurisdictions or categories of clients – a practice known as derisking. According to a new report from the World Bank, the effect of this practice varies widely from country to country and is does not affect broad categories of clients.
The report, The Decline in Access to Correspondent Banking Services in Emerging Markets: Trends, Impacts and Solutions, examined the impact of derisking through eight country case studies and found the effect at the macro level to be limited. At the same time, impact at the micro level is often intense, with banks losing access to the international financial system. Read more
To move funds internationally, banks rely on CBRs, roughly defined as the provision of banking services by one bank (the correspondent) to another bank (the respondent). CBRs are essential to international payments and provide an essential nexus between local economies and jurisdictions and the international financial system. “They underpin international trade, remittances, and humanitarian financial flows among countries and are therefore particularly relevant to developing countries to support economic growth and development,” the report explains.
The report notes that several other studies have shown that in certain jurisdictions, including those that are developing, NPOs are having problems opening bank accounts and, in particular, moving funds internationally. Pervasive views of charitable customers as being particularly vulnerable to terrorist financing have resulted in NPOs automatically being considered high risk. “During the past several years, there have been an increasing number of reports of humanitarian assistance and other vital services being stymied by an inability to transfer funds internationally,” the report states. These derisking challenges are affecting all types and sizes of NPOs, “including putting pressure on the operations of larger, well-known, international humanitarian organizations.”