A new report has found that big bank derisking is hampering efforts by financial institutions throughout Europe to deliver services that promote financial inclusion.
The root cause appears to be the risk-averse strategies adopted in response to the financial crisis of 2008, combined with subsequent money laundering fines imposed on several big banks.
According to new research commissioned by Banking Circle, big banks have been forced to protect themselves, and their actions have left many smaller banks and non-bank financial institutions (NBFIs) without correspondent banking partners.
As such, this means smaller banks and NBFIs are unable to access fair and affordable international banking solutions, and it also means that financially vulnerable countries and businesses are further excluded and disadvantaged.
New research findings
Banking Circle’s findings are compiled in its latest whitepaper, Big Bank De-Risking: The Invisible Threat to Financial Inclusion.
In a survey of 700 cash managers and corporate treasurers in the UK, Northern Europe, and Southern Europe, Banking Circle found that:
- 2 in 3 said their bank ended their relationship because they no longer met the bank’s eligibility criteria
- 77% have more banking relationships now than they did 10 years ago
- 80% have seen correspondent banking costs rise
- 44% stopped offering international payments because their bank ended the relationship
The survey also found that 65% of respondents believe they currently have too many banking relationships.
However, while most have had to take on additional relationships to remain competitive and keep serving diverse customer requirements, many also report that they have been let go by their banks, some with less than a month’s notice.
The survey also asked respondents about the current correspondent banking offering, to examine how, coupled with bank derisking, the current solution is compounding financial exclusion for many customers.
Less than half of the respondents believe there are any good alternatives to traditional cross-border payments, although 71% feel that an alternative would benefit the global economy.
Derisking – an open secret
Mitch Trehan, head of compliance and money laundering reporting officer at Banking Circle UK, said it’s “no industry secret” that some banks have been derisking for decades.
He added that this trend has intensified in recent years, however, and that Banking Cricle’s latest research reveals the impact that this is having on smaller financial institutions across Europe.
“For example, the banks and non-bank financial institutions with fewer correspondent banking relationships reported having difficulty offering international payments, and that their costs have increased.
“It is a spiral that the financial industry has a responsibility to address. Individuals and businesses should have fair access to the banking solutions they need to prosper, and Banking Circle’s mission is to build a new tech-based approach that improves processes and lowers costs for banks and non-bank financial institutions of all types and sizes.”
Banking Circle describes itself as a payments bank for the new economy. It is a fully licenced bank, free of legacy systems, that enables payments companies and banks of any scale to move money quickly and at a low cost.