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IIG Trade Finance Insights Archive/Past Editions

How Correspondent Banking Woes Weigh on Trade Finance
IIG Trade Finance Insights, August 2017

The loss of correspondent banking relationships (CBRs) worldwide, but especially in emerging economies, has been an ongoing concern for many in the trade finance field. New data and research indicate that this concern is warranted and provide insight into how fewer CBRs could impact international trade and trade finance, especially bank-provided trade finance. CBRs allow one bank to hold deposits owned by other so-called respondent banks and to provide those respondent banks with necessary payment and other services. “Such flows, including for trade finance and remittances, are important for financial stability and support economic growth and development,” according to a report from the International Monetary Fund.

The loss of CBRs is generally attributed to the cost of maintaining these relationships for major banks compared to the returns such relationships yield. In particular, large banks cite the cost of compliance, especially anti-money laundering (AML) and Know Your Customer requirements, to be the key reason for pulling back from them.

As part of an effort to track CBR numbers, a new survey of 345 banks in 48 jurisdictions...


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