The Eurosystem has been able to avoid double regulation while refraining from introducing specific oversight requirements for correspondent banks by relying on banking supervision at various levels (European, global and national). This aims to ensure that risks are consistently and uniformly covered in the euro area.

However, within the last years, correspondent banks have terminated business relationships with regions or classes of customers. There are a number of reasons for these terminations, notably: excessive compliance costs, risks from correspondent banks’ dealings with banks in other jurisdictions, and difficulties managing risks of being inadvertently embroiled in money laundering or terrorist financing.

If unaddressed, the withdrawal of Correspondent Banking relationships, as part of a “de-risking strategy” could systemically impact the operations of certain jurisdictions. Which could disrupt financial services and lead to the financial exclusion of categories of customers, notably organizations that serve vulnerable segments of the population. More generally, the risk of a jurisdiction deprived access to the global financial system would warrant policy actions.

This impacts most smaller countries which are at a definite disadvantage.

++ Since the Single Supervisory Mechanism should facilitate close cooperation between banks, what is your view on this issue and what policy actions do you believe could be taken to address this issue at EU level?

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