Banks may well have been shedding and declining riskier customers and prospects for as long as any of us can remember, but not to the extent they are today. Since the financial crisis of 2008 banks have been more risk-averse than ever, and the $2bn money laundering settlement HSBC had to pay in 2012 further intensified de-risking.
While the big banks are forced to protect themselves, their actions are leaving many smaller banks and non-bank Financial Institutions (NBFIs) without correspondent banking partners. This leaves them financially excluded, unable to access fair and affordable international banking solutions with the result that already financially vulnerable societies and businesses are further excluded and put at a greater disadvantage than ever. It is a dangerous spiral that the financial industry has a moral responsibility to bring to an end. All individuals and businesses should have fair access to the banking solutions they need to prosper.
Committed to uncovering and resolving the cross-border challenges businesses and their customers face, Banking Circle recently spoke to 700 Cash Managers and Corporate Treasurers from Tier 2 banks, Tier 3 banks and NBFIs across Europe. With the aim of examining the impact and opportunities de-risking has brought about, the research found that the financial institutions (FIs) surveyed have faced increasing costs from the growing network of correspondent banking partners.
‘Big Bank De-Risking: The Invisible Threat to Financial Inclusion‘ reveals that 3 in 4 of respondents have more banking relationships now than ten years ago, and 2 in 3 feel they have too many. And for 4 in 5, correspondent banking costs have risen in the past decade. This is unaffordable and unsustainable for many, leaving them excluded from reaching their full – global – potential.
The other side of the coin
Despite the majority of FI respondents now having more banking relationships, probably to remain competitive and keep serving diverse customer requirements, many also reported that they had been let go by some of their banks. For those having lost relationships, having fewer relationships led to difficulties offering international payments, and costs have risen still further.
The current solution, coupled with widespread bank de-risking, is compounding the crisis of business financial exclusion. Less than half of the respondents to the Banking Circle study believe there are any good alternatives to traditional cross-border payments, and 71% feel that an alternative would benefit the global economy.
Sadly, a real alternative isn’t possible, as a bank always needs to be involved to process cross-border transactions. However, there is a new approach that is already improving access and financial inclusion. Rather than wasting time trying to find an impossible new way to process international payments without correspondent banking partners, Banking Circle has built a new tech-based approach that improves processes and lowers costs for businesses of all types and sizes.
Find out more about how de-risking is affecting smaller banks and NBFIs, and the opportunities to deliver better solutions in the latest Banking Circle white paper: ‘Big Bank De-Risking: The Invisible Threat to Financial Inclusion‘.