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Prepared by Charles Amo-Yartey
CBRs are one part of the cross-border payments made between banks. Trade finance, portfolio flows, and investment (swaps, derivatives, and other securities) and wealth management functions also facilitate payments for goods, services, and financial assets.
It is important to note that CBR activities are low margin. Thus, in small jurisdictions and for small banks, the increased due diligence cost makes the business less profitable even if the AML/CFT framework is strong.
A nested CBR is a relationship that offers CBR in a currency different from the country in which the correspondent is domiciled (for example, a US bank offering an account and services in euros). Use of nested relationships with 2nd, 3rd tier banks, which are lower rated, could also have capital implications as those CBRs carry higher risk weights reducing capital adequacy ratios.
Offshore banks are required to have active CBRs before obtaining approval for a license.
Most USD CBRs are going through Portuguese and Spanish banks and less through global banks like Citibank, BoNY, and Santander+.
The minimum data needed to effectively use the framework includes the reporting period; the identity and country of the reporting bank and its correspondent bank; the number and identifier of the different current (nostro) accounts provided by the correspondent bank; the currency in which the accounts are denominated; and the total value and volumes of transactions for each reporting period.