LowTax -- Caribbean banks have lost important correspondent banking relationships as a result of international banks withdrawing from the region, according to a working paper recently released by the International Monetary Fund (IMF).
Since the global financial crisis, international banks have reduced their involvement in less profitable and riskier activities globally, including correspondent banking. This is sometimes referred to as "derisking," and has particularly affected the Caribbean region.
The working paper says the macroeconomic impact of derisking has so far been limited, in part because Caribbean banks either have multiple relationships or have been successful in replacing these relationships. However, the cost of services has increased substantially, some services have been cut back, and some sectors have experienced reduced access.
The report looks at measures to address bank derisking, but acknowledges there is no silver bullet. These measures include: better regional compliance with anti-money laundering and countering the financing of terrorism global standards; increased clarity from international regulators, such as the Financial Action Task Force, on what is expected of global banks; and greater transparency by global banks on their risk tolerance policies to respondent banks and their reasons for terminating specific correspondent banking relationships. The IMF also recommends Caribbean banks establish their own US banks as a way to maintain correspondent banking relationships.