What Happens When Banks Stop Doing Business With Some Countries

IMF Blog, June 30, 2016

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When global banks withdraw from banking relationships in particular countries, the global effect so far has been a gentle ripple, but if unaddressed, it may become more like a tsunami for the countries they leave.
Without cross-border banking services, the flow of money, investment, trade, and foreign payments may stop, affecting:
- remittances (difficulty for people abroad to send money home);
- international charities (inability to send donations to fund local organizations);
- exporters (unable to receive payments);
- access to financial systems for local residents (possible exclusion from their own financial system).
Example impact: Samoa is currently in danger of losing the ability to receive formal remittances, which amount to 20 percent of GDP.
Regions and countries noted as hardest hit: countries in the Caribbean, small island states in the Pacific, and African countries such as Liberia and Angola.

Changes in regulations since the crisis.
Unclear or overly complex regulations.
The cost of doing business in certain countries, particularly if local rules are not up to international standards.
Economic and trade sanctions.
Rules to combat money laundering and terrorism financing.
Tax transparency requirements.
Banks balance the costs of doing business against risks to their bottom line and to their reputation.

The right policies can help fix the problem; both the public and private sector have a role to play.
A coordinated approach is needed to better understand the phenomenon and identify country-specific approaches.
The IMF can:
- help bring countries together with the private sector to create an open dialogue among policymakers, banks, and other key stakeholders;
- provide policy advice and technical assistance so countries can update or establish rules designed to keep their financial systems safe and up to international standards.
The Financial Stability Board’s 2015 action plan is cited as a guide to priorities.

The paper examines what drives correspondent banking withdrawal and its consequences.
It includes:
- details about how particular countries are affected;
- an explanation of correspondent banking relationships (global banks operating in other countries);
- measures taken by different countries to respond to these developments.
An interview with one of the paper’s co-authors is available via the linked audio resource.

IMFBlog is a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day.
The IMF is described as an organization of 191 countries, working to foster global monetary cooperation and financial stability around the world.
The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.

Source: IMFBlog, June 30, 2016 — “What Happens When Banks Stop Doing Business With Some Countries”

Correspondent banking report to G20 Summit
- Correspondent banking report to G20 Summit (Markdown version)
- Correspondent banking report to G20 Summit (PDF)