35 years: Corporate banking
In a previous video we discussed that, historically, the main two product lines for a correspondent banking team were Payments and Trade Finance - both very much transactional banking product lines. In this video, Paul discusses how management of credit and risk, key international events and rightsizing of bank portfolios led to the evolution of correspondent banking.
In a previous video we discussed that, historically, the main two product lines for a correspondent banking team were Payments and Trade Finance - both very much transactional banking product lines. In this video, Paul discusses how management of credit and risk, key international events and rightsizing of bank portfolios led to the evolution of correspondent banking.
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12 mins 59 secs
Correspondent banking has developed extensively over the past 20 years. From the change in management of product lines to the key events that have had a lasting impact, correspondent banking has experienced a variety of change.
Key learning objectives:
Understand how correspondent banking has changed
Key events that changed correspondent banking
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These product lines were extremely important. They would typically be highly remunerative and could certainly be classified as 'bank to bank' dealings. At the time however, they were not considered to be part of the ‘correspondent banking’ world and as such, were not typically managed or co-ordinated by the correspondent banking teams.
20 years ago the risk and credit function focused on the analysis of counterparty and country credit risk. This would in turn be broken down into credit/risk analysis of the economy, sovereign and political risk along with the domestic regulatory regime, currency stability and finally an assessment of the banking counterparties.
As a mitigant, larger banks reviewing portfolios did have to balance out the risks of holding too many relationships with not having sufficient to cover its clients - and the need for wide access into global markets. However, as the compliance burden became even more significant, many OECD banks started downsizing, and in their view de-risking - portfolios - particularly in emerging markets - and rather than, for example, having 9 or 10 correspondent banks in a country - they would consolidate business on perhaps 2 or 3 banks in each individual market.
Unfortunately for some smaller banks in certain countries, most global banks chose the same 2 or 3 banks with the highest credit rating and market share and so a material number of perfectly sound ‘mid-ranking’ banks were faced with an inability to access overseas markets. This caused a material impact resulting in financial exclusion for some banks, their clients and in some extreme cases, whole economies and regions.
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