Correspondent banking

Correspondent banking is the system that moves money across borders today. No single bank has accounts everywhere, so when a bank needs to make a payment in a currency or country where it has no presence, it uses another bank that does. In the words of the CPMI, it is an arrangement under which one bank, the correspondent, holds deposits owned by other banks, the respondents, and provides payment and other services to them.

For a domestic transfer, two banks settle directly. For a cross-border one, the payment often passes through a chain: the sending bank, one or more correspondents, and the receiving bank. Each link in that chain adds a step, and each step adds cost, a foreign-exchange spread, a cut-off time, and a handoff of information.

Why the chain is expensive and slow

The friction is structural, not accidental. Each correspondent holds a funded account, applies its own fees and foreign-exchange margin, and processes the payment within its own operating hours. Value sits in transit while it moves from one bank’s ledger to the next, and none of the parties can see the whole path at once. This is the plumbing behind the familiar complaints about cross-border payments: settlement measured in days, fees that are hard to see in advance, and money that is capital-trapped while in flight.

The costs are large enough that the G20 has set formal targets to reduce them. The Financial Stability Board’s roadmap asks for the global average cost of a retail cross-border payment to fall to no more than 1%, with no corridor above 3%, and for three-quarters of payments to reach the recipient within an hour, all by the end of 2027. As of its 2025 progress report, the FSB judged it unlikely that satisfactory improvements at the global level will be achieved in line with that timetable.

The network is shrinking

Correspondent banking is also contracting. The number of active correspondent banking relationships fell by about 22% between 2011 and 2019, and the decline has continued since. The retreat is uneven: some regions, including parts of Latin America and the Caribbean, the Pacific, and Africa, have lost a third or more of their correspondents. As relationships are cut, payments in the affected corridors route through longer chains or become harder to make at all.

The main cause is de-risking, banks stepping back from relationships whose compliance burden and risk outweigh the revenue. The BIS is careful to note that this is not the only factor; economies of scale and scope matter too. But the direction is clear, and it is the backdrop against which faster, more direct settlement infrastructure is being built.