Caribbean Response to the Withdrawal of Correspondent Banking
IMF Deputy Managing Director, Mr. Tao Zhang, gave an interesting and comprehensive speech summarising the “Caribbean response to the Withdrawal of Correspondent Banking” at the Conference on the Withdrawal of Correspondent Banking in Antigua & Barbuda on October 28, 2016.
The following realities stood out to me from Mr. Zhang’s speech:
- Almost 60% of the Caribbean Association of Banks’ member institutions, which it has interviewed, report a loss of CBRs.
- In some cases where the banks have been able to hold on to CBRs, some key services have been discontinued e.g: cheque clearance, trade finance and wire transfers
- Some banks face higher costs for the remaining services.
- Global correspondent banks are withdrawing from transactions involving money transfer operators.
Given the above, Mr. Zhang rightly noted that if this continues, not only would it affect the financial stability of affected countries, but also economic growth, financial inclusion, and other development goals. He further reiterated that continued loss of CBRs would drive legitimate transactions underground and encourage increased informality, thereby undermining anti-money laundering and countering the financing of terrorism (AML/CFT) objectives.
Mr. Zhang then turned to the issues driving this trend. A number of international organisations and agencies have studied this issue, including the IMF, and their findings were echoed in Mr. Zhang’s speech. He noted, for example, the cost-benefit considerations which banks have to weigh; rising expenses associated with compliance and international tax transparency versus limited profitability in some CBRs.
He made reference to several policy responses being made by Caribbean authorities and other affected regions which he noted have already started to have some results. He gave the example of the US Treasury Department which has increased its education of financial institutions on the “precise nature of transactions and behaviours that are subject to sanctions”. He further made reference of Eastern Caribbean Currency Union (ECCU) countries’ decision to consolidate their national AML/CFT work into one regional operation under the responsibility of the Eastern Caribbean Central Bank (ECCB).
Mr. Zhang emphasised that there is “no quick fix” to the problem and reiterated the need for urgent action to mitigate the impact on affected economies.
In addressing what are the next steps, he outlined three areas for further exploration:
- Addressing the problem of economies of scale
- Mitigating cost and technical limitations
- Improving information flows
He also set out a number of ways in which the IMF could be of assistance, including for example, facilitating dialogue and encouraging standard-setting bodies to take account of the impact of CBR policies.
In concluding, Mr. Zhang reiterated the IMF’s continued commitment to working with affected countries on the issue until it is solved.
The full speech is a must-read and may be accessed here.
Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.