Dear Editor,
Prime Minister Mia Motley in a very energetic and impassionate presentation last Wednesday September 14 before the United States House of Representatives Committee on Financial Matters requested that US banks reverse their decision to end Correspondent Banking Relationships (CBRs) in the Caribbean. The US Congressional Committee was at the time conducting a hearing on ‘the impact of De-Risking in the Caribbean and Strategies for Ensuring Financial Access’. They were told in no uncertain terms by PM Motley that US current policy would result in the Caribbean nations being at risk of becoming a ‘financial pariahs’. She called on the US Treasury to be true to its mandate if it wants to be risk sensitive as it needs to focus on where the money is rather than creating rules that act as a proxy to Money Laundering and Financial Terrorism.
The CBRs is defined as a bilateral arrangement between banks, often involving a reciprocal cross-border relationship in multiple currencies. CBRs is critical function of the global financial system that provides important transactions and services that include third party payments such as wire transfers, credit card transactions and settlements, trade financing, foreign exchange transactions and payments. The free flow of cross border trade in a globalized world is therefore heavily dependent on CBRs. Caribbean countries are small open economies as reflected by their high levels of import and export ratios and are very dependent on CBRs to integrate with the global economy. The loss of CBRs or de-risking by banks has negatively affected the Caribbean countries in numerous ways; mainly the free flow of international trade and commerce, remittances, offshore banks and foreign direct investments (FDI).
Traditionally, most Caribbean countries had a long history of relationship with US banks. When Bank of America withdrew CRBs from Guyana citing lower profitability due to enhanced due diligence, low value transaction and risk aversion two local banks were badly affected. They had to seek alternative solution via third party relationship with a European financial institution that was far more expensive and cumbersome especially as it pertains to US dollar transactions. Further, most Caribbean countries had lost over 30 percent of their CBRs in the last decade. Most people in the Caribbean will agree with PM Motley when she argued that opening a bank account in the past was considered “the right of passage to becoming an adult” this has now become a ‘gigantean obstacle’. She further argued that foreign investors and locals alike spend weeks and months trying to open a bank account as individuals to live and company to trade while this process takes hours in the metropolitan states.
While this is happening there are repeated calls from Multilateral Financial Institutions and G20 Heads for greater financial inclusion and banking of the un-bankable. The process is even more onerous for citizens from rural areaswho have to provide lot number and street name to complete an application for savings account. This process is further complicated with the request not for one but two picture IDs. While the implementation of the Anti-Money Laundering and Financial Terrorism Act is a laudable objective, the rigid and inflexible process has led more or less to financial disintermediation in developing countries. Developing especially small countries need the CBRs to create a modern financial sector that is the bulwarks of economic growth and poverty reduction. A multilateral approach that is more transparent and inclusive with a level playing field is the best way to manage risk to the financial system.
Sincerely,
Rajendra Rampersaud
