Correspondent banking is the provision of services by a financial institution to another financial institution, including its subsidiaries, in different countries. A correspondent bank acts as an intermediary or agent, facilitating banking services on behalf of another bank and its customers.

The new report, authored by former Commerce Undersecretary for Economic Affairs, Dr. Robert J. Shapirofound that the misplaced focus on US AML/CFT regulations and their implementation on correspondent banking, with particular attention to transfers between United States and Mexicocontributed to a cumulative US GDP loss of $38.3 billionapproximately $5.5 billion per year, between 2012 and 2018.

The econometric analysis documents the following economic effects of the current misplaced regulation of the correspondent banking market:

  • The impact of AML/CFT regulation of correspondent banking on FDI Mexico in the United States was associated with a slowdown in GDP growth of around $5.6 billion per year and slowing employment gains by about 40,728 jobs in any given year from 2012 to 2018.
  • The contraction of the correspondent banking market reduced Mexican FDI flows to United States by an estimate $477 million per year from 2012 to 2018 and reduces the estimated stock of FDI by United States during these years closely $3.3 billion.
  • These same declines in correspondent banking are associated with a $1.4 billion reduction in the American stock of FDI in Mexico.
  • These effects reduced job growth in the United States by about 285,100 jobs between 2012 and 2018, or an average of 40,730 jobs per year.

The analysis also revealed that:

  • $6.3 billion in bulk U.S. currency was transferred in 2021, with half coming from tourism and the rest from payments to Mexican workers employed near the U.S.-Mexico border, “pocket remittances”, reduced to Mexico by visiting migrants and the proceeds of crime seized by the Mexican government.
  • Over the past decade, the Mexican government and banking institutions have implemented modern systems to track cross-border transactions and comply with AML/CFT standards and protocols, and the IMF and World Bank have commended Mexico for these developments.
  • Despite the reduced risk of engaging with Mexican financial institutions in cross-border transactions, concerns about misplaced regulatory oversight have sharply contracted the correspondent banking market, resulting in a 92% reduction in the number of participating U.S. institutions from 20 only two since 2016.
  • The decline of correspondent banking relationships coupled with misplaced AML/CFT efforts has reduced Mexican exports to United States by $74.3 billion over the decade from 2011 to 2021 compared to what would have been expected without changes in correspondent banking.
  • The reduction in Mexican exports coupled with the reduction in correspondent banking has dampened employment growth in the United States by approximately 113,830 jobs between 2011 and 2021
  • The populations affected by the restriction of the correspondent banking market for remittances are generally those least able to bear the burdens and associated costs, including low-income people who often have marginal access to financial institutions.

Dr. Shapiro’s report revealed that current AML/CFT regulations are costly, inefficient and misplaced, which have a significant impact on foreign direct investment and trade between the two countries. Dr. Shapiro and his team applied a new econometric model to analyze the impact of these regulations.

These ineffective regulations restrict the services Mexican correspondent banks can provide and limit the flow of remittances in and out of the country.

“Our econometric analysis shows that reductions in cross-border correspondent banking relationships and values ​​associated with AML/CFT efforts have led to slower growth in foreign direct investment and trade between the two countries than might have been expected. expect without the AML/CFT focus on correspondent banking,” said Dr. Shapiro. “These efforts ignore more than a decade of documented measures by the Mexican government and banking institutions to significantly reduce the risk of money launderers taking advantage of national banks and correspondent banking arrangements. The result has instead drastically reduced the number of banks in the remittance business, which in turn increases the burden and cost of sending and receiving remittances and negatively affects those who are generally the least capable. bear these burdens and associated costs, including low-income and often unbanked people with marginal access to financial institutions.

“Dr. Shapiro’s groundbreaking work illustrates the importance of fixing current AML/CFT regulations, particularly as we know that financial and economic instability is a key driver of migration flows,” said the CEO of tab. Glenn Hamer mentioned. “U.S. institutions should be advised that it is safe to engage in the correspondent banking market. The longer the status quo is maintained, the greater the continued impact will be on GDP, FDI and jobs on both sides of the border.

“Dr. Shapiro’s article makes it clear that the correspondent banking market needs updated and unambiguous guidelines that reflect the reality of today’s banking environment and reverse outdated policies that hurt those who are least able to assume the costs.”

Dr. Shapiro’s report is released with additional support from the National Bankers Association, a trade group representing minority-owned banks across the United States and fighting for increased access to financial inclusion and banking services.

dr. Robert J. Shapiro is an economic advisor and president of the DC-based economic analyst firm Sonecon, LLC. Dr Shapiro advised presidents bill clinton and barack obamavice president Albert Gore, Jr.British Prime Minister Tony Blair and Minister of Foreign Affairs David MilibandSecretary of State hillary clintonTreasury Secretaries Robert Rubin and Timothy Geithnerand other senior officials from the Clinton, Obama, and Trump administrations and the U.S. Congress.

The white paper is available at:

TAB is the state chamber of Texas, representing businesses of all sizes and from all industries. The Association’s goal is to champion the best business climate in the world, unleashing the power of free enterprise to improve the lives of generations. Follow TAB on Facebook, Twitterand LinkedIn.

Telephone: 512-550-5147
[email protected]

SOURCE Texas Association of Business