Correspondent Banking Research Articles

Reflections on the future of relationship management in correspondent banking

The importance and the complexity of managing bank relationships within correspondent banking businesses has skyrocketed in conjunction with the global tectonic shifts and changes following first the banking and now the developed markets’ sovereign crises. This paper argues that business models are in need of restructuring in terms of understanding the importance of relationship management; the payment chain value creation, both in terms of what creates value in the payment chain and how that value is created; and, in particular, understanding the growing importance of relationships, partner-type alliances and knowledge transfers when banks evaluate their growth strategies, and hence make the ‘buy’ decisions. Likewise, product development opportunities should focus on efficiencies in processing and in information management. If the relationship management of banks is not changed, however, all such investment could be wasted.

Assessment of Correspondent Banks Case Study

Problem statement: This study aims at evaluating corresponding banks i n Jordan. Characterizing the goals, instruments and profitabi lity under unfavorable conditions of financial setbacks and unfair competition among banks. Focuses on the feasibility and profitability of Philadelphia Investment Bank in its international t rade via its Correspondent banks. Approach: Problems and setbacks shall be screened out; reason ed and appropriate optimal recommendations are to be presented. Results: The study followed the analytical approach and depe nded on History Documents and In depth Interview techniques and puts a major emphasis on the fact that correspondent banking has become an essential cornerstone of international business amid the new era of world trade, globalization, external competition and cartels from the major opponents to Jordanian Banks, the main conclusion is realized the importan ce of correspondent banks in the international trade, so Philadelphia bank benefited from correspo ndent banks for the cheap cost of market entry and services were tailored to the scale of required loc ale. But there was no big investment in staff facil ities. And there are setbacks in dealing with corresponden t banks, such as fund delay in reaching destinations on time. Moreover, Jordanian banks hav e suffered in general from these correspondent banks because they deal with these correspondent ba nks individually. Conclusion/Recommendations: The recommendation of the study is, it is the time to consider solidification and forming one financia l block, or a sort of cartel and face these correspon dent banks in one unit. They are also called for developing collective strategies. Small banks shoul d merge and form huge capital blocks. Another strategy is that Jordanian banks should minimize th e reliance on foreign banks and should develop their own, by establishing international branches a broad to help financing their international activit ies.

Vertical integration to avoid contracting with potential competitors: Evidence from bankers' banks

We examine a vertical integration decision within the commercial banking industry. During the last quarter of the 20th century, some community banks reduced their traditional reliance on correspondent banks for upstream products and services by joining bankers' banks, a form of business cooperative. Research on vertical integration focuses primarily on firm-specific investment, market power, and government regulation. However, this case is difficult to explain in terms of these standard vertical integration motives. Our evidence suggests that bankers' banks are a response to technological change and deregulation that results in increased costs faced by community banks in dealing with correspondent banks as both suppliers and potential competitors. For instance, loan participations require sharing proprietary information about major loan customers, something a community bank would not want to provide to a potential competitor.

What is the true role and value of custody within correspondent banking?

Providing custody for the assets of global investors has become an increasingly specialised business from which many banks have withdrawn. Even among those banks that choose to specialise, the costs of remaining competitive have resulted in mergers and acquisitions, with the result that few banks are now regarded as global custodians. Banks outside this group are faced with the challenge of providing their globally-invested clients with a comprehensive offering or risking losing the broader relationship. This paper seeks to draw a distinction between the process of manufacturing a global custody product and the opportunities and challenges of distribution. It considers the approaches and decisions made in the past and considers some alternative strategies in the light of market developments and the economies of scale. By drawing a parallel with the tradition of correspondent banking, it suggests how banks can work with complementary partners to meet their clients’ requirements.

Groups of services delivered by Brazilian branchless banking and respective network integration models

Over the last decade, Brazil has pioneered an innovative model of branchless banking, known as correspondent banking, involving distribution partnership between banks, several kinds of retailers and a variety of other participants, which have allowed an unprecedented growth in bank outreach and became a reference worldwide. However, despite the extensive number of studies recently developed focusing on Brazilian branchless banking, there exists a clear research gap in the literature. It is still necessary to identify the different business configurations involving network integration through which the branchless banking channel can be structured, as well as the way they relate to the range of bank services delivered. Given this gap, our objective is to investigate the relationship between network integration models and services delivered through the branchless banking channel. Based on twenty interviews with managers involved with the correspondent banking business and data collected on almost 300 correspondent locations, our research is developed in two steps. First, we created a qualitative taxonomy through which we identified three classes of network integration models. Second, we performed a cluster analysis to explain the groups of financial services that fit each model. By contextualizing correspondents’ network integration processes through the lens of transaction costs economics, our results suggest that the more suited to deliver social-oriented, “pro-poor” services the channel is, the more it is controlled by banks. This research offers contributions to managers and policy makers interested in understanding better how different correspondent banking configurations are related with specific portfolios of services. Researchers interested in the subject of branchless banking can also benefit from the taxonomy presented and the transaction costs analysis of this kind of banking channel, which has been adopted in a number of developing countries all over the world now.

The National Banking Acts and the Transformation of New York City Banking During the Civil War Era

Focusing on the New York banking sector, we analyze a neglected, but profound impact of the National Banking Acts. By resisting federal banking legislation and “boycotting” newly chartered national banks, the New York Clearing House Association members created market opportunities for the new entrants to dominate the correspondent banking market. The new entrants’ aggressive tactics including interest payments on deposits increased their vulnerability to panicky withdrawals by country banks. They also magnified conflicts of interest within the clearinghouse, which weakened its central banking functions and further destabilized the macroeconomy.

Do foreign correspondent relationships indicate Russian banks quality?

This paper examines the relationship between foreign correspondent banking and domestic bank quality. The research compiles a unique data set from Russian language sources (Russian bank correspondent relationships, Central Bank of Russia decisions, and Russian bank financial and non-financial characteristics) and Federal Reserve sanctions for violations of correspondent bank transactions during a rare event timeframe, the Russian implementation of a de novo deposit insurance system for private banks. After controlling for financial and non-financial risk factors of Russian banks, we find that sanctions imposed on foreign correspondents are significant, additional indicators of domestic bank quality. Specifically, we observe that Russian banks who had correspondent relationships with sanctioned U.S. banks were less likely to be accepted into the deposit insurance system. These results suggest that foreign correspondents may possess complementary data useful for improving the external monitoring of banks. This study is the first to reveal the significant information content in correspondent bank associates. Recommendations for researchers and government supervisory agencies suggest future studies and regulatory policies.

INFORMATION AND COMMUNICATION TECHNOLOGIES TO DELIVER FINANCIAL SERVICES FOR THE LOW-INCOME POPULATION: CORRESPONDENT BANKING AT BANCO LEMON

Brazilian banks have developed innovative initiatives to deliver financial services for the lowincome population through correspondent banking (CB). Banco Lemon is such an interesting case to be studied because it has implemented a business model based exclusively on CB outlets and its focus was on low-income clients. This paper describes Banco Lemon’s adoption process of the CB technology to deliver financial services for the low-income population, promoting a historical description of the bank’s activities, since its creation and up to the year 2009. Eventually, this paper concludes that bill payment initiatives were successful while credit initiatives led to unexpressive outcomes.

Liquidity Costs and Tiering in Large-Value Payment Systems

This paper develops and simulates a model of the emergence of networks in an interbank, RTGS payment system. A number of banks, faced with random streams of payment orders, choose whether to link directly to the payment system, or to use a correspondent bank. Settling payments directly on the system imposes liquidity costs which depend on the maximum liquidity overdraft incurred during the day. On the other hand, using a correspondent entails paying a flat fee, charged by the correspondent to recoup liquidity costs and to extract a profit. We specify a protocol whereby one bank in each period can revisit its choice whether to link directly to the system, or to become clients of other banks, thus generating a dynamic client-correspondent network. We simulate this protocol, observing the emergence of different network structures. The liquidity pricing regime chosen by a central bank is found to affect the tiering process and the network structures it produces. A calibration exercise on data from the UK CHAPS system suggests that the model is able to generate realistic predictions, i.e., a network topology similar to that observed in reality, driven solely by the underlying pattern of payments and the structure of liquidity costs.

Vertical Integration to Avoid Contracting with Potential Competitors: Evidence from Bankers’ Banks

We examine a vertical integration decision within the commercial banking industry. During the last quarter of the 20th century, some community banks reduced their traditional reliance on correspondent banks for upstream products and services by joining bankers’ banks, a form of business cooperative. Research on vertical integration focuses primarily on firm-specific investment, market power, and government regulation. However, this case is difficult to explain in terms of these standard vertical integration motives. Our evidence suggests that bankers’ banks are a response to technological change and deregulation that results in increased costs faced by community banks in dealing with correspondent banks as both suppliers and potential competitors. For instance, loan participations require sharing proprietary information about major loan customers, something a community bank would not want to provide to a potential competitor.

From Drafts to Checks: The Evolution of Correspondent Banking Networks and the Formation of the Modern U.S. Payments System, 1850–1914

Checks remained local payments instruments throughout virtually the entire nineteenth century. Their significant use in interregional transactions dates only to the 1890s. We explain their lagged spatial diffusion by the evolution of centralized payments institutions to coordinate transactions among myriad banks, not real technological changes to “annihilate” distance. The pivotal institutions were large correspondent banks, especially in New York. After the Civil War, New York funds constituted a national settlement medium, and the concentration of bankers’ balances in New York yielded liquidity and other externalities smoothing the flow of check payments.

The Role of ICT in Helping Parallel Paths Converge: Microcredit and Correspondent Banking in Brazil

Two important phenomena in the financial sector have drawn attention in recent years: on the one hand, microcredit is growing and earning renown as a powerful instrument for income generation and poverty reduction in a number of developing countries; on the other hand, correspondent banking (CB) outlets have risen to prominence as a main channel for the distribution of financial services to the low- income population, with particular success in Brazil. This paper argues that information and communication technology (ICT) applications have the potential to help these two movements, until now tracing parallel paths, to converge. We apply an emergent conceptual framework that combines three theoretical lenses: social shaping of technology, structurationist view of technology and contextualism. The result is an original reading of the possible combinations of CB and microfinance in Brazil and the expectation that the multilevel framework might help to understand similar complex phenomena in other Latin America contexts.

UMB Financial Corp

AbstractCommercial Banking (MIC: SIC: 6021 NAIC: 522110)UMB Financial is a financial holding company. At Dec 31 2007, Co. owned four commercial banks, a brokerage company, a community development corporation, a consulting company, a mutual fund servicing company and 14 other subsidiaries. Co.'s banks provide banking services to commercial, retail, government and correspondent bank customers. Also, Co.'s key subsidiary bank, UMB Bank, n.a., provides international banking, investment, cash management, and data processing services for correspondent banks and trust activities for individuals, estates, business corporations, governmental bodies and public authorities. At Dec 31 2007, Co. had total assets of $9.34 billion and deposits of $6.55 billion.

THE VULNERABILITY OF CORRESPONDENT BANKING ON MONEY LAUNDERING

Bank has important role in process of converting illicit money to be legal proceeds. Once opportunity appears, money launderer will take advantage of that situation. Generally, banks which have poor anti-money laundering control become the main priority for offenders to process laundering their illicit money. These typical banks are usually high risk engaged in criminal behaviour, because they do not know whether or not their clients are engaged in money laundering activities. Offenders in other countries also use those banks as correspondent banks where they may use in transferring money. Some preventive actions have been conducted by some banks of some countries to detect the patterns of money laundering to have good anti-money laundering control, such as the US and Australia by applying advances technologies, such as data mining technologies in identifying the patterns. However, applying those technologies is not enough for preventing money laundering activities due to the inherent weaknesses on it. Thus by having good anti-money laundering control is a compulsory for banking.

UMB Financial Corp

AbstractCommercial Banking (MIC: SIC: 6021 NAIC: 522110)UMB Financial is a financial holding company. As of Dec 31 2007, Co. owned all of the outstanding stock of four commercial banks, a brokerage company, a community development corporation, a consulting company, a mutual fund servicing company and 14 other subsidiaries. Co.'s four commercial banks are engaged in general commercial banking business entirely in domestic markets. One of the banks is in Missouri, one bank in Kansas, one bank in Colorado, and one bank in Arizona. Co.'s banks offer a full range of banking services to commercial, retail, government and correspondent bank customers. As of Dec 31 2007, Co. has total assets of $9.34 billion and total deposits of $6.55 billion.

UMB Financial Corp

AbstractCommercial Banking (MIC: 8.1 SIC: 6021 NAIC: 522110)UMB Financial is a financial holding company. As of Dec 31 2007, Co. owned all of the outstanding stock of four commercial banks, a brokerage company, a community development corporation, a consulting company, a mutual fund servicing company and 14 other subsidiaries. Co.'s four commercial banks are engaged in general commercial banking business entirely in domestic markets. One of the banks is in Missouri, one bank in Kansas, one bank in Colorado, and one bank in Arizona. Co.'s banks offer a full range of banking services to commercial, retail, government and correspondent bank customers. As of Dec 31 2007, Co. has total assets of $9.34 billion and total deposits of $6.55 billion.

UMB Financial Corp

AbstractCommercial Banking (MIC: 8.1 SIC: 6021 NAIC:522110)UMB Financial is a financial holding company. As of Dec 31 2006, Co. owned all of the outstanding stock of five commercial banks, a brokerage company, a community development corporation, a consulting company, a mutual fund servicing company and 16 other subsidiaries. Co.'s five commercial banks are engaged in general commercial banking business entirely in domestic markets. Two of the banks are in Missouri, one bank in Kansas, one bank in Colorado, and one bank in Arizona. Co.'s banks provide a range of banking services to commercial, retail, government and correspondent bank customers. As of Dec 31 2006, Co. has total assets of $8.92 billion and total deposits of $6.31 billion.

UMB Financial Corp

AbstractCommercial Banking (MIC: 8.1 SIC: 6021 NAIC:522110)UMB Financial is a financial holding company. Co. owns all of the outstanding stock of five commercial banks, a brokerage company, a community development corporation, a consulting company, a mutual fund servicing company and 16 other subsidiaries. Co.'s five commercial banks are engaged in general commercial banking business entirely in domestic markets. Two of the banks are in Missouri, one bank in Kansas, one bank in Colorado, and one bank in Arizona. Co.'s banks provide a range of banking services to commercial, retail, government and correspondent bank customers. As of Dec 31 2006, Co. has total assets ofS8.92 billion and total deposits of $6.31 billion.

UMB Financial Corp

AbstractCommercial Banking (MIC: 8.1 SIC: 6021 NAIC:522110)UMB Financial is a financial holding company. Co. owns all of the outstanding stock of five commercial banks, a brokerage company, a community development corporation, a consulting company, a mutual fund servicing company and 16 other subsidiaries. Co.'s five commercial banks are engaged in general commercial banking business entirely in domestic markets. Two of the banks are in Missouri, one bank in Kansas, one bank in Colorado, and one bank in Arizona. Co.'s banks provide a range of banking services to commercial, retail, government and correspondent bank customers. As of Dec 31 2006, Co. has total assets ofS8.92 billion and total deposits of $6.31 billion.

UMB Financial Corp

AbstractCommercial Banking (MIC: 8.1 SIC: 6021 NAIC:522110)UMB Financial is a financial holding company. Co. owns all of the outstanding stock of five commercial banks, a brokerage company, a community development corporation, a consulting company, a mutual fund servicing company and 16 other subsidiaries. Co.'s five commercial banks are engaged in general commercial banking business entirely in domestic markets. Two of the banks are in Missouri, one bank in Kansas, one bank in Colorado, and one bank in Arizona. Co.'s banks provide a range of banking services to commercial, retail, government and correspondent bank customers. As of Dec 31 2006, Co. has total assets ofS8.92 billion and total deposits of $6.31 billion.