WASHINGTON, United States (CMC) — The Bahamas has warned that the decision by banks in Europe and the United States to end banking correspondence with financial institutions in the Caribbean could lead to further economic problems for the region.

Foreign Affairs Minister Fred Mitchell addressing the Permanent Council of the Organization of American States (OAS) Conversation on Wednesday, said that there were continuing and real threats to integral development in many countries across the Americas, in the areas of access to development finance and international banking.

He recalled that in March, the Permanent Council had discussed the emergent banking issue of “de-risking” within the Americas that threatened to undermine the integrity of the banking systems in many countries throughout the Americas.

“Correspondent banking”, which can broadly be defined as the provision of banking services by one bank to another bank is essential for customer payments, especially across borders, and for the access of banks themselves to foreign financial systems.

“The ability to make and receive international payments via correspondent banking is vital for businesses and individuals.” Correspondent banks are private sector institutions that, pursuant to recommendations issued by the Financial Action Task Force (FATF), are required to evaluate risks when doing business with other banks and jurisdictions,” Mitchell said.

He said the practice of ending banking relationships with clients or closing accounts deemed to be of “high risk” is referred to as “de-risking”.

“Across the Caribbean region and in many Latin American countries, we have seen a surge in “the phenomenon of global financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, perceived risk around such concerns as profitability, prudential requirements, anxiety after the global financial crisis, and reputational risk, money laundering or terrorism financing.”

The Bahamas foreign minister said the facilitation of banking services is the lifeblood of any economy, particularly so in the Caribbean region and despite the best efforts of international financial institutions to work together to increase financial inclusion, “de-risking and the resultant withdrawal of banking services risks only retarding regional development and alienating regional economies from international commerce.

“Further, the consequent shrinking legal space in which one can transmit remittance or conduct trade across the hemisphere threatens to not only impose severe negative economic effects on our societies but also proliferate social decay.”

Mitchell said that it is important therefore for the OAS to recognize that this prevailing situation of the severing of correspondent banking relationships with commercial banks in some of member states by global banks “poses a severe threat to the economic growth, social development and political stability, particularly of small economies, by undermining our ability to participate in standard international financial and economic transactions”.

He said while states like The Bahamas are committed to full and continued participation in the evolving rules-based system of global financial governance, there is urgent need for action to ensure that banking regulations designed to foster transparency and accountability and prevent money laundering and terrorism financing do not facilitate unintended consequences of financial exclusion and economic decline of small economies by cutting their access to international correspondent banks.