The ability to send money across borders may face rising risks as the correspondent banking system is becoming increasingly concentrated, suggests new data from the Bank for International Settlements (BIS).
In a report, the BIS said most cross-border payments flow through correspondent banking relationships, and the number of those arrangements is shrinking. In 2018, the number of active relationships declined by 3.5%, the BIS said, adding that they are now down by 20% since 2012.
“The decline in correspondent banking relationships is universal, yet it is more pronounced in some regions than others,” the report noted.
For instance, correspondent relationships are down by 10% in North America since 2012. They have dropped by 30% in the rest of the Americas over the same time frame.
Additionally, the BIS said that correspondent banking is becoming increasingly concentrated, which may heighten risks to cross-border payment flows.
“The continuing decline in the number of correspondent banking relationships in many countries around the world remains a source of concern,” the BIS said.
Specifically, the report says that a reduction in the ability to send and receive international payments, “could push people into using unregulated and potentially unsafe ‘shadow payments’ with further consequences for growth, financial inclusion and international trade.”
To keep an eye on these trends, the Committee on Payment Market Infrastructure (CPMI) will publish annual quantitative reviews for the next five years, tracking cross-border payment message data, it notes.