The withdrawal of Correspondent Banking Relationships (CBR) in the Region, will be one of the
focal points as the Caribbean Community (Caricom) gears up to host its 28th Intercessional Heads of Government Conference tomorrow in Guyana’s Capital City, Georgetown.
This was according to Caricom’s Secretary-General, Ambassador Irwin LaRocque, during a media conference hosted at the Caricom Secretariat last Monday.
“Another troubling issue that continues to exercise our minds is the one of correspondent banking and that also has an impact on the financial transactions and by extension, trade and remittances,” the Ambassador said.
Correspondent banking is a bilateral arrangement, often involving a mutual cross-border relationship in multiple currencies. A correspondent banking arrangement involves one bank (the correspondent) providing a deposit account or other liability accounts, and related services, to another bank (the respondent), often including its affiliates.
The arrangement requires the exchange of messages to settle transactions by crediting and debiting those accounts. Correspondent banking enables the provision of domestic and cross-border payments.
These relationships facilitate a range of transactions and services including the execution of third-party payments, trade finance, the banks’ own cash clearing, liquidity management and short-term borrowing or investment needs in a particular currency.
In the Guyana context, Bank of America, the largest correspondent bank in the United States of America dealing with local banks, severed ties with several commercial banks last August.
Governor of the local Central Bank, Dr Gobind Ganga, had assured the nation that “other banks will take up the slack.”
Instead, additional problems have surfaced with commercial banks and citizens both come out with allegations of a foreign currency shortage. The nation has also seen the rapid fluctuations in the exchange rates specifically as it relates to the United States Dollar.
Ambassador LaRocque told media operatives that Caricom has mounted a very active advocacy initiative and the bloc is pulling out all the stops to ensure that issue of CBR are addressed at the highest level of the Region to find meaningful solutions.
“We at least raised the awareness and are engaged in discussions with various parties with regards to the plight of the region with regards to the withdrawal of correspondent banking,” he said.
LaRocque continued that these engagements included talks with the US, the European Union (EU), the International Monetary Fund (IMF), the World Bank and the Inter-American Development Bank (IDB).
He stated, also, that the Prime Minister of Antigua and Barbuda, Gaston Brown, in his capacity as Chair of the Committee on Corresponding Banking, staged a global stakeholders’ conference on this issue last October and brought together the relevant parties such as representatives of the international community; representatives of international financial institutions; regulators; and private sector banks.
“We will also be having a presentation by the Committee of Central Bank Governors – the governors of the central banks constituted themselves into a committee. The committee from time to time, is assigned issues and provides advice to the Heads of Government,”
Ambassador La Rocque added that Heads of Government will be receiving such advice at the upcoming meeting on how the Community can address the matter of withdrawal of CBR.
During the conference on the withdrawal of CBR last October, IMF Deputy Managing Director, Tao Zhang, in Antigua and Barbuda, told the participants that based on information from the Caribbean Association of Banks, almost 60 percent of member institutions interviewed, reported a loss of such relationships.
He cautioned that if the trend is not arrested, it could damage not only financial stability, but also economic growth, financial inclusion, and other development goals.
“Of course these potential consequences are worrisome. Moreover, the continued loss of legitimate correspondent banking services may drive legitimate transactions underground. This would encourage transactions in cash and increase other forms of informality.
So the end result could be to undermine the objectives of the progress we have seen in the effort to supervise and regulate the financial sector services and activities, including the effort to fight money laundering and combat the financing of terrorism.”
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