Reuters: Regulatory News: ECB warns of risks in correspondent banking

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ECB warns of risks in correspondent banking Apr 8th 2013, 14:59 FRANKFURT, April 8 | Mon Apr 8, 2013 10:59am EDT FRANKFURT, April 8 (Reuters) - The ECB warned on Monday against concentration in the correspondent banking business, which handles payments between smaller banks, saying if a major player failed it could threaten financial stability. The European Central Bank said that daily turnover of euro transactions through correspondent banking was 1.1 trillion euros ($1.4 trillion) and that the largest four correspondent banks represent more than 80 percent of total turnover value. "This warrants the attention of payment system overseers, as the default of one of the larger and most interconnected correspondent banks might quickly trigger a domino effect on their respective customer banks and/or service-providing banks, as well as the risk of spillover to interdependent payment systems," the study said. "Besides operational risk, liquidity and credit risks also pose a significant threat in correspondent banking business, with intraday credit exposures normally being uncollateralised." It added, however, that the ECB wants to avoid the double regulation of correspondent banks and thus has not introduced specific oversight for those banks. The planned move of banking supervision under the ECB umbrella should help in covering correspondent banking risks consistently and in a uniform manner, the study said. Link this Share this Digg this Email Reprints

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