WASHINGTON, DC, 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,” Mitchell said.

The Bahamas foreign minister said the facilitation of banking services is the lifeblood of any economy, particularly so in the Caribbean, 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 recognise 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.

Mitchell said that the Caribbean was also facing persistent challenges to access to development financing.

He said to achieve the more than 160 targets which comprise the 17 Sustainable Development Goals of the 2030 Agenda, The Bahamas, like others, will need the assistance of the international community.

“International commitments and national goals could be rendered meaningless if developing countries do not have access to sufficient affordable financing for development,” Mitchell said.

“The economy of The Bahamas, like that of so many countries of the region, is exceptionally exposed to various types of vulnerabilities, including environmental, economic and social, and other external shocks, all of which at times disrupt the planned fiscal policy of the Government that is geared towards the further development of a sustainable economy.”

Mitchell warned that the reverberations and duration of these shocks are protracted and much more profound on nations like The Bahamas.

“We have a small population and face challenges due to our archipelagic geographical configuration. This therefore necessitates the continued maintenance of approximately 54 airports, 20 of which are international airports, over 100 public health care facilities and more than 150 public schools.

“Despite these immense costs of duplication of infrastructure, often my country is misguidedly dismissed as a “high income” country that is not in need of aid or assistance.

“What we want is a broadening and modernising of the development financing indicators used to assess development level and development need. We have stated, and continue to argue, that gross domestic product (GDP) per capita should not be the primary determinant for the question of international economic assistance or concessional access to development financing.”

Mitchell said that in order for The Bahamas to meet its joint 2030 targets, the unique circumstances of developing states, especially those that are among the most vulnerable such as SIDS, should be given due consideration when deciding qualifications for economic assistance and development financing.

But he said he was of the firm view that there remains a vital role for the OAS, through the Permanent Council, to provide a forum for the examination of the aforementioned problems and facilitation of solutions to these common challenges.

“Consideration of challenges such as these undoubtedly makes real the Charter’s mandate on common and joint responsibility to seek solutions to actions or measures which have an adverse effect on another member state’s development, particularly when these resultant conditions cannot be remedied through the efforts of that state,” he added.