The transfer of the trillions of dollars that regularly move around the globe is accomplished through the use of accounts that the banks maintain with each other to settle those transfers, as well as for other banking services. These accounts, called correspondent accounts, are critical to the efficient functioning of the world’s financial system. Most of these accounts are maintained at large international banks (“correspondents”)—many of which are in the United States, European Union, Canada and other industrially developed countries. But banks in other countries (“respondents”) need accounts at those banks to handle funds transfers, other payments, etc., and if those large banks are reluctant to maintain accounts for them because the bank and/or the country are seen as a greater risk, then they may cut them off or charge them a larger fee to maintain the account.
There has been a troubling trend toward some banks terminating their correspondent banking account relationships with banks in certain areas of the world, and potentially to all the banks in particular countries, essentially isolating them from accessing the international financial system and adversely affecting that country's own local banking system.
Read the full article: Work continues on addressing correspondent banking decline