Treasury Today Country Profiles in association with Citi

March 2006

Previous editions

Editorial

What is happening to correspondent banking?

Changes in the payments infrastructure may evolve slowly but they influence the shape and nature of the banking industry. Perhaps nowhere more so than in the world of correspondent banking.

Banks have always made a lot of money by dealing with each other. It is not by chance that SIBOS, which has become the banking industry s biggest annual conference, has also become the banking industry s biggest annual party attended by many hard-working and hard-drinking correspondent bankers.

But the industry is changing. The days of corresponding (and drinking) together are no longer enough of a basis for successful business. You help me and my customers and I ll help you and yours is not what is required. In fact, banks have less and less need for correspondent relationships around the world as they can communicate electronically and access clearing systems with ease. And their customers can do the same. Access to the SWIFT system the communication backbone of correspondent banking is now open to corporate customers, albeit on a restricted basis for the time being.

So, where does that leave the concept of correspondent banking?

Some say the concept is dead, but that is far from the truth. Changed would be a better analysis. Real-time nostros a bank telling another bank real-time what is happening on its account is just one example of a technical development giving further life to correspondent banking.

Banks will always do business with each other whenever one bank has a capability that the other requires or desires. It is just that the relationship may have become rather one-way with little or no respondence.

The challenge is to the nature of the correspondent banking relationship not the relationship itself.