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Report March 1, 2022

Financial de-risking in the Caribbean: The US implications and what needs to be done

By Jason Marczak and Wazim Mowla

Access to the global financial system and development tools is critical for Caribbean economic recovery, growth, and resilience. Key to this access is correspondent banking – a medium that governments and financial institutions use to facilitate trade, investments, remittances, foreign aid, and more. But over the past several years, most Caribbean governments and banks have seen a steady decline in correspondent banking relationships as institutions across the world deem the region as too small to be profitable due to high compliance costs and the perception that the region is a high-risk jurisdiction.

This report identifies how the withdrawal of correspondent banking relations, otherwise known as de-risking, affects Caribbean economies, people, and US-Caribbean relations. It is a product of the Caribbean Initiative at the Adrienne Arsht Latin America Center’s Financial Inclusion Task Force – a collection of representatives from correspondent and respondent bankers, regulators, and members of multilateral institutions from across the United States and the Caribbean.

The report outlines task force recommendations that can strengthen financial inclusion and access across the region by focusing on four key themes:

  1. a regional approach to improving the profitability of correspondent banking in the Caribbean;
  2. the importance of setting consistent standards for international compliance;
  3. why correspondent banking is critical to the global financial system; and
  4. how to build relationships between US and Caribbean banks.

Above all, the report explains how de-risking effects more than just the Caribbean, as increased poverty, reduced purchasing power, the growing use of Chinese currencies, and the potential for regional instability have direct implications for the United States. 

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Image: People use an automated teller machine (ATM) in downtown Havana, March 15, 2016. REUTERS/Alexandre Meneghini