Speaking this week at the Federal Reserve Bank of New York, IMF Chief Christine LaGarde, shone a light on the breakdown in global banking relationships, warning that that de-risking is not a localised problem because of its potential to create systemic risks in the global financial system.In their June report the IMF warned that the withdrawal of commercial banking relationships had reached “a critical level in some affected countries,” and warned that it could “disrupt financing services and cross border flows, including trade finance and remittances.”
Lagarde’s comments come a few weeks after the Commonwealth Secretariat presented its own initial findings on a this problem, about which their small state members have been particularly exercised for some time.
She insisted that island economies and emerging markets are increasingly at risk of financial shocks, because costly regulations and business preferences are causing Western banks to terminate, or suspend correspondent banking relationships with smaller foreign jurisdictions.
Acknowledging that de-risking is a commercial response to concerns about profit margins, Lagarde did not, however, suggest a commercial solution, as some affected countries have been considering, such as proposals to consolidate banking across a country or region; and paying selected banks a premium for the provision of corresponding banking services, effectively subsiding foreign commercial banks providing engaged in this service line.
Instead, Ms. Lagarde pointed to the work of the Fund in new technologies, such as block chain, which she asserted could assist global banks in making cross-border money flows more efficient. She further added that her team at the IMF was looking at “how that new technology can be used to circumvent complying with international standards” and how it “could help in alleviating the cost benefit analysis of certain institutions.”
Why the Interest in BlockChain
Here’s how Simon Taylor, Vice-President of blockchain research and development at Barclays, expalains the hype:
“Banks do very similar things to each other, even though they compete,” .They basically keep our money safe and a big computer keeps track of who has what. But getting these computers to talk to each other is remarkably complex and expensive – the tech is getting a little old.If banks started sharing data using a tailor-made version of blockchain it could remove the need for middlemen, a lot of manual processing, and speed up transactions, says Mr Taylor, thereby reducing costs.Having access to an open, transparent ledger of bank transactions would also be useful for regulators, he adds. And it could help governments tackle tax fraud.”