Eleventh Survey On Correspondent Banking in Euro: November 2020

Eleventh survey on
correspondent banking in
euro
2019
November 2020
Contents
Executive summary 2
Introduction 4
1 The concept of correspondent banking 5
1.1 Principles of correspondent banking 5
1.2 Role and relevance of correspondent banking 6
2 Trends and challenges affecting correspondent banking 9
2.1 De-risking in correspondent banking 9
Box 1 The Financial Stability Board’s action plan to assess and address
the decline in correspondent banking relationships 10
2.2 Concentration and specialisation 11
Box 2 Non-banks and the provision of cross-border payments: old and

new competitors 12
3 Modernisation of correspondent banking 14
3.1 Improvements in the processing of payments 14
Box 3 International work on enhancing cross-border payments 15
3.2 Improvements in compliance and due diligence process 16
4 Results of the eleventh correspondent banking survey 18
4.1 Main takeaways 18
4.2 Methodology 19
4.3 Characteristics of the correspondent banks participating in the

survey 19
4.4 Correspondent banking activity in value and volume 21
4.5 Evolution of the correspondent banking market 27
5 Conclusion 32
6 Annex 1: General questionnaire for the 2019 survey 34
7 Annex 2: Additional questionnaire for the 2019 survey 36
Eleventh survey on correspondent banking in euro – Contents 1

Executive summary
The handling of payments between financial institutions may take place through
correspondent banking or multilateral arrangements (i.e. payment systems).
Correspondent banking arrangements, similar to payment systems, are a
well-established channel through which banks can access financial services in
different jurisdictions, inside and outside the European Union, and provide
cross-border payment services to their customers. For this reason, these
arrangements are of high relevance for the financial market and have been within the
scope of the Eurosystem’s oversight activity since the European Central Bank (ECB)
was established. Risks and efficiencies in the correspondent banking market are
relevant for both the supervision of banks and the oversight of payment systems. To
avoid double regulation of banks, the Eurosystem has not set any specific regulation
requirements for correspondent banking arrangements; instead it relies on the
interplay between payments oversight and banking supervision to monitor the sector.
Since 1999, the Eurosystem has conducted surveys to monitor the evolution of the
correspondent banking business. Participation in the survey is voluntary and the
number of respondents reaching the €1 billion threshold in the daily turnover of their
loro accounts has decreased over the years. Fifteen banks located in six euro area
countries (Austria, France, Germany, Italy, Luxembourg and Spain) participated in this
eleventh survey. Despite the limited number of participants, the survey captures the
largest correspondent banks and covers a large proportion of the entire business in
euro.
The findings of the 2019 survey show a 22% decrease in the total turnover compared
to 2016 data, as well as a 21% reduction in the number of customer banks and 43%
decline in the average transaction size. Nevertheless, correspondent banking
relationships continue to represent an important link in the payment chain with a total
daily turnover of €686 billion. According to the reported figures, one-third (36%) of
transactions in value are euro-domestic transactions, i.e. payments where the
originator and beneficiary are both located in the euro area. This activity is primarily
related to providing the originator’s bank with indirect access to payment systems
(mainly TARGET2 and EURO1) without additional costs or requirements.
Increasing regulatory requirements related to Anti-Money Laundering and Combating

the Financing of Terrorism (AML/CFT) procedures as well as “Know Your Customer”
(KYC) procedures partially explain the decreasing turnover and declining number of
correspondent banking arrangements. As a result of the higher compliance costs,
banks are reducing their exposure to activities that might affect their profitability or
their reputation, and are shifting their strategies to more profitable businesses. To
reverse this negative trend, the Financial Stability Board (FSB) launched a four point
action plan and worked with relevant international organisations and standard setting
bodies to develop a roadmap to enhance cross-border payments. Compared to
previous surveys it seems that the top players in the market remained the same and
there is a tendency in the largest banks to specialise in cross-border activity, while
Eleventh survey on correspondent banking in euro – Executive summary 2

smaller banks are reducing their business. As a result, the correspondent banking
market remains highly concentrated. A closer look at the length of the correspondent
banking chain provides further evidence of the specialisation pattern. 25% of
payments are processed with no intermediary and 39% are processed via three
correspondent banks, suggesting that banks try to minimise the length of chains and
that large service-providing banks greatly benefit from the establishment of direct
relationships.
Looking ahead, irrespective of the decline in activity, the correspondent banking

business is expected to continue to play a crucial function in the payments ecosystem.
Many of the banks surveyed (60%) expect an increase in correspondent banking
activities over the medium-term due to an increase in efficiency and the introduction of
the new services in the cross-border environment. However, they also mention a
number of factors, which increase uncertainty about the future of the business
including: competition from fintech, potential market entrants, new payment methods,
mergers in the banking sector and higher compliance costs.
Eleventh survey on correspondent banking in euro – Executive summary 3

Introduction
Correspondent banking refers to bilateral relationships between banks that allow for
the transfer of funds via a book-to-book transfer. The correspondent banking network
plays an important role in the global payment system as a well-established channel for
banks to access financial services in different jurisdictions, inside and outside the
European Union.
Correspondent banking relationships are not subject to the direct oversight of the
Eurosystem. However, given their relevance for the smooth functioning of the payment
systems, the Eurosystem has been monitoring correspondent banking activities.
This report presents the results of the eleventh survey on correspondent banking and
provides a trend analysis of the correspondent banking business in the euro area. The
findings were complemented by a series of interviews conducted with stakeholders.
The report is structured as follows:
• Chapter 1 describes the principle of functioning of correspondent banking;
• Chapter 2 analyses the trends and challenges affecting correspondent banking;
• Chapter 3 identifies current and future developments and the use of innovation in
the correspondent banking industry;
• Chapter 4 presents the quantitative and qualitative results of the survey.
Eleventh survey on correspondent banking in euro – Introduction 4

1 The concept of correspondent banking
Correspondent banking has been widely used since its invention. The principles on
which it functions remain largely unchanged, aside from technical and legal
adaptations, and they are still largely used today especially for settling cross-border
payments.
1.1 Principles of correspondent banking

A bilateral correspondent banking arrangement is a contractual relationship between
two banks for the provision of payment services and other payment obligations arising
in the interbank space. These two institutions handle the sorting and processing of
payments without involving an intermediary.
However, most correspondent banking arrangements involve at least one additional

party known as the ‘correspondent’ or ‘service-providing’ bank. The correspondent
bank receives payment instructions from one or both institutions and processes them
via book-to-book transfers across banks. This involves the use of nostro, vostro and
loro accounts.
Figure 1
Types of accounts
Nostro account Vostro account Loro account
• Our money with you • Your money with us • Their money with them
• Foreign currency account • Domestic currency account • An account used by a third
held by a domestic bank in a held by foreign banks in a party bank to settle foreign
foreign bank domestic bank exchange transactions via a
domestic bank which holds a
nostro account
Source: ECB.
The service-providing bank opens an account for the respondent bank which is, from
the perspective of the respondent bank, a nostro account and, from the perspective of
the service providing bank, a vostro account. If the domestic bank does not hold a
nostro account in the foreign bank it can use the account of a third-party bank, which
will be referred to as a loro account. Settlement is made by crediting and debiting the
respective accounts. Since the entries made in one account are reflected in the other
account, those accounts are sometimes referred to as ‘mirror accounts’. Payments are
instructed via standardised messages, predominantly using the Society for Worldwide
Interbank Financial Telecommunications (SWIFT) messaging network.
Eleventh survey on correspondent banking in euro – The concept of correspondent banking 5

Before the establishment of a new correspondent banking arrangement, the
service-providing bank conducts a due diligence check to understand the business
and assess financial and AML/CFT 1 risks of the customer bank (i.e. KYC processes).
Correspondent banking relationships are typically asymmetric meaning that these

services are not necessarily offered on a reciprocity basis, but by a small number of
global banks providing services to a number of respondent banks.
Figure 2 shows a simplified payment flow from the originator’s bank to the
beneficiary’s bank via a correspondent. Two options are depicted: (A) the payment is
processed exclusively via book-to-book transfer, and (B) the correspondent uses a
payment system to reach the beneficiary’s bank.
Figure 2
Payment flow in correspondent banking
Payment System
B-5 B-6 B-7
1 3 A-5 B-9
A-7
Originator Originator’s Bank Correspondent Bank Beneficiary’s Bank Beneficiary
Correspond B-8
B-4
ent Bank’s Beneficiary’s
Correspondent own bank own
Bank’s account account
Originator account +100 -100 +100 -100 Beneficiary
Originator’s
account +100 account
bank account
-100 2 +100
-100
Correspondent
A-4 Beneficiary’s A-6
Bank’s account
bank account
-100
+100
1. The originator instructs the payment

2. The originator’s bank debits the account of the originator and credits the
correspondent bank account
3. The originator’s bank sends a SWIFT message to the correspondent bank
A: Use of correspondent bank only B: Involvement of payment system

A-4 The correspondent bank debits the originator’s bank account and B-4 The correspondent bank debits the originator's account and
credits the beneficiary’s bank accounts credits its own account
A-5 The correspondent bank sends a SWIFT message to the B-5 The correspondent bank sends a payment instruction to the
beneficiary’s bank payment system
A-6 The beneficiary’s bank debits the correspondent bank’s account B-6 The payment is cleared and settled via the payment system
and credits the beneficiary’s account B-7 The beneficiary’s bank receives the funds on its own account
A-7 The beneficiary is informed that the transaction is completed B-8 The beneficiary’s bank credits the beneficiary’s account
B-9 The beneficiary is informed that the transaction is completed
Source: ECB.
Note: Graphic adapted from “Payment Systems in Denmark”, Danmarks Nationalbank Copenhagen, 2005.
1.2 Role and relevance of correspondent banking

Correspondent banking has lost its relevance for domestic payments within a single
jurisdiction. 2 However, it still plays a crucial role in cross-border payments.
1
See “Anti-money laundering and counter terrorist financing”, European Commission.
2
See “CPMI publishes new data on correspondent banking networks showing 20% reduction in
relationships over seven years”, Press release, Bank for International Settlements, May 2019.

1.2.1 A worldwide network
Before the development of multilateral payment systems, correspondent banking

arrangements were the most common form of settlement for non-cash interbank
payments, both at the national level and across borders.
The importance of correspondent banking has diminished over time in certain areas
as a result of de-risking, as well as financial market integration and consolidation,
e.g. the establishment of payment systems for the settlement of domestic payments;
the development of widely accessible euro payment systems; the formation of
Payment Versus Payment (PvP) systems for the simultaneous settlement of foreign
exchange transactions with the elimination of the settlement risk; the integration of
securities settlement (i.e. TARGET2-Securities); and the introduction of the central
clearing obligation (i.e. European Market Infrastructure Regulation requirements).
Nevertheless, correspondent banking remains a valid alternative from an efficiency

and cost perspective to be used in case payments cannot be processed directly by the
payment system, or to make payments across systems. Today, this is still typically the
case for cross-border payments. In fact, most of the payment systems cover the
domestic market (i.e. national and euro area market) and some integrated payment
markets, such as the Single Euro Payments Area. Furthermore, multi-national banks
with direct access to payment systems of different currency areas are rare due to
restrictive payment system access policies and cost for establishing branches and
subsidiaries in foreign countries that can access a payment system. 3 The
correspondent banking network can be seen as a worldwide network of bilateral
relations that allows a bank’s customer to make and receive payments in any currency
from/to virtually any counterparty that has a bank account. To cater for this, sometimes
several correspondents may be involved in a single payment.
In addition to processing cross-border payments, correspondent banking provides

banks with indirect access to payment systems (i.e. with a direct participant – the
service-providing bank – acting on their behalf) or to settle non-standardised
transactions related to international trade financing (e.g. letters of credit) which cannot
be handled within payment systems without resulting in truncation of information. In
2019, of every euro sent by direct participants in TARGET2, 6.13 cents were settled on
behalf of indirectly connected parties and 75% of these tiering arrangements came
from outside the European Economic Area (EEA). This means that TARGET2 and
other payment systems make it possible for foreign banks to access the euro market
via a direct participant in TARGET2 (i.e. correspondent banks). 4
3
For example, Guideline (EU) 2019/1849 of the European Central Bank of 4 October 2019 amending
Guideline ECB/2012/27 on a Trans-European Automated Real-time Gross Settlement Express Transfer
system (TARGET2) (OJ L 283, 5.11.2019, p. 64) allows for the participation of credit institutions
established within and outside of the EEA. Credit institutions established outside the EEA, however, need
to act through a branch established in the EEA.
4
See “TARGET Annual Report 2019”, ECB, Frankfurt am Main, May 2020.

1.2.2 Services and products
Correspondent banking includes various services, such as international wire transfers,

but also possibly cheque clearing, cash management services, foreign exchange
services and payable-through account services.
Aside from the direct provision of payment services to respondent banks,

correspondent banks may also process transactions for a number of banks that are
not their direct customers. The practice of using a bank’s correspondent relationship is
referred to as downstream (or nested) correspondent banking. More specifically
‘downstream correspondent banking’ is defined as “the use of a bank's correspondent
relationship by a number of underlying banks or financial institutions through their
relationships with the correspondent bank’s direct customer”. 5 When the account of
the respondent bank can be used directly by its customers, the service is referred to as
payable-through account.
For payable-through accounts services it is difficult to implement the same due

diligence requirements as for other accounts. Hence, they are more risky to operate
from an anti-money laundering perspective and tend to be rarer in the euro area. This
is confirmed by the 2019 survey, in which none of the surveyed banks were proposing
this service for euro-denominated payments.
Chart 2
Share of banks offering correspondent banking services
(as a percentage of total respondents)
100% 92%
80%
62%
60% 54% 54%
40%
20%
0%
0%
International wire Check clearing Cash management FX services Payable-through
transfers account
Describe the main correspondent banking services offered by your institution
Source: The banks surveyed.
5
See “Correspondent Banking Due Diligence Questionnaire (CBDDQ)”, The Wolfsberg Group, February
2018.

2 Trends and challenges affecting
correspondent banking
In 2019 the Committee on Payments and Market Infrastructures (CPMI) noted that the
number of correspondent banking relationships had shrunk by 20% between 2011 and
2018. 6 Increased costs of due diligence, risk of reputational damages and concerns
around profitability have accelerated changes in the correspondent banking
landscape.
2.1 De-risking in correspondent banking

In line with regulatory expectations (i.e. AML/CFT and Financial Action Task Force
(FATF) Recommendations 7), correspondent banks have taken actions to mitigate their
exposure to the risk of money laundering and terrorism financing. Banks have done so
by investing in more sophisticated tools to screen and monitor payments and
customers, by adapting the products offered, and by withdrawing from some
correspondent banking relationships.
As risks associated with correspondent banking have been rising, banks reviewed
their Risk Appetite Statements (RAS) which document the level of exposure they are
willing to take. Based on their RAS, correspondent banks review their customer
portfolios on an ongoing basis: if the customer portfolio review shows that activity is
outside the banks’ RAS or it is not possible to process customer flows safely, banks
restrict this activity or end the relationship with the customer.
Interviewed banks reported that in the last years they have effectively reduced their
portfolio of high-risk customer banks when it was not possible to reduce risks
otherwise. The overall reduction in the number of correspondent banking relationships
is also due to high costs and rationalisation of country pairs (corridors) by customer
banks, meaning fewer direct connections between countries. 8 Although Europe
followed the global declining trend, there are still several hundred active
correspondent banks in Europe 9, which is due both to the fact that the European
banking sector is not very consolidated, and that Europe is not considered a high-risk
region. In contrast, in jurisdictions that are perceived as risky (based on the status of
countries in the FATF global network 10 or other similar indicators), banks face
difficulties in maintaining existing correspondent banking relationships or in forming
new ones. This results in strong geographical imbalances.
6
See footnote 2 in this document.
7
See “The FATF Recommendations”, FATF, June 2019.
8
See “FSB Action Plan to Assess and Address the Decline in Correspondent Banking – Progress Report”,
FSB, May 2019.
9
See “Correspondent Banking”, CPMI, Bank for International Settlements, July 2016.
10
See “FATF country map”, FATF.
Eleventh survey on correspondent banking in euro – Trends and challenges affecting

correspondent banking 9
Box 1
The Financial Stability Board’s action plan to assess and address the decline in
correspondent banking relationships
Based on data provided by SWIFT, the FSB and the CPMI have observed 11 a continued decline in
the number of correspondent banking relationships. The decline is widespread among currencies and
countries but latest available figures show that the trend slowed down in 2018. Over 2011-2018, the
most affected regions are Melanesia and Polynesia (-42.9% and -36.5%, respectively) as well as
South America, the Caribbean and Northern Africa (between -32% and -34%).
As certain regions of the world were at risk of being cut out of the correspondent banking network, the
FSB launched, in November 2015, a four point action plan to assess and address the decline in
correspondent banking relationships, coordinated by the Correspondent Banking Coordination Group
(CBCG). These four areas of action include: (i) a closer examination of the dimension and
implications of the issue, (ii) clarification of regulatory expectations, (iii) domestic capacity building for
jurisdictions that are mostly affected, and (iv) stronger tools for due diligence for correspondent
banks.
In the 2019 progress report 12,the FSB indicated that the components of the action plan are largely in
place and that attention has turned to monitoring of implementation. Most important measures
include the publication of further guidance by the FATF and the Basel Committee on Banking
Supervision (BCBS) 13, which clarified regulatory expectations for correspondent banking activities.
The guidance is currently being implemented by domestic regulators.
Another key achievement has been the development and implementation of the Correspondent
Banking Due Diligence Questionnaire (CBDDQ) by the Wolfsberg Group 14. The CBDDQ allows banks
to provide consistent information about their activity and financial crime compliance programmes,
which minimises the need for additional requirements. As a global standardised tool for the conduct of
due diligence, the CBDDQ makes for more efficient and less costly procedures for giving access to a
correspondent banking account.
The third element in the FSB action plan supports coordination of domestic capacity building to
improve and increase trust in the supervisory and compliance frameworks of affected jurisdictions.
Capacity building in this context extends not only to public sector initiatives, but also to the private
sector.
Under the fourth action area, the FSB CBCG Workstream 4 supported the implementation of the
recommendations included in the CPMI’s correspondent banking report of July 2016. 15 Inter alia, one
recommendation was the use of KYC utilities to store due diligence information and help
correspondent banks to assess and manage risks related to respondent banks and to provide
11
12
13
The FATF issued further guidance in the area of correspondent banking, in cooperation with the BCBS
AML/CFT Expert Group (AMLEG), including: “FATF Guidance: Correspondent Banking Services”, FATF,
October 2016; Guidance for a Risk-Based Approach: Money or Value Transfer Services , FATF,
November 2016; and “Annex 2” to “Guidelines: Sound management of risks relating to money laundering
and financing of terrorism”, BCBS, Bank for International Settlements, February 2016.
14
The Wolfsberg Group is an association of thirteen global banks created in 2000 with the objective of
developing frameworks and guidance for the management of financial crime risks, in particular in the
correspondent banking domain.
15

information efficiently. Other recommendations include using the Legal Entity Identifier (LEI) and to
add the resulting information as an addition to payments messages. The FSB reported progress in
the development of tools at the international level but also indicated the need for further cooperation
and monitoring of implementations.
The FSB, together with relevant international organisations and standard setting bodies, has also
conducted an assessment of existing cross-border payment arrangements and challenges, and
published a roadmap for enhancing cross-border payments 16 (See Box 3 for more details).
2.2 Concentration and specialisation

The reduction in the number of active correspondent relationships can also be
attributed to the ongoing reorganisation of correspondent banking activities. While
correspondent banking services used to be provided on a reciprocity basis,
correspondent banking is now largely a specialised activity dominated by a smaller
number of global banks. Interviews with European stakeholders confirm that there are
fewer service-providing banks both globally and at the European level. Banks tend to
be more specialised or more selective when it comes to offered currencies, products
and/or serviced geographies.
Since the 2007-08 financial crisis, banks responding to the survey have assessed their
existing correspondent banking activities and reportedly reduced the number of
relationships they maintain. Interviews indicate that banks tend to rely on fewer
service-providing banks with whom they seek to establish a reliable relationship.
Nevertheless, having multiple providers for each destination currency is seen as
standard market practice, at least for key global currencies.
Since 2010, the Eurosystem surveys have confirmed this tendency. There is an
observable reduction, from survey to survey, in the number of banks reaching the
€1 billion threshold that was introduced in 2012. At the same time, the large players in
the correspondent banking market tend to increase their turnovers. The strong
increase in market concentration observed in the previous surveys has now stabilised.
High concentration of the correspondent banking market could, in principle, reduce
competition among the remaining participants and lead to rising prices. However,
according to respondents to the current survey, this is not the case and the threat of
new entrants, the implementation of automated processes, increased transparency of
fees, and innovation in the payments market are expected to keep fees down.
16
See “Enhancing Cross-border Payments – Stage 1 report to the G20”, FSB, April 2020.

Chart 2
Expectations about the trend in correspondent banking fees
Would you expect fees to increase, decrease or remain stable?

(percentage of total respondents)
100%
91%
80%
60%
40%
20%
9%
0%
0%
Increase Decrease Stable
Box 2
Non-banks and the provision of cross-border payments: old and new competitors
The correspondent banking network still forms the backbone of the international payment system, but
not all cross-border transactions are directly handled by correspondent banks. Looking at the different
types of cross-border payments, correspondent banking is first and foremost used to process
interbank transactions. Also, most corporate payments are processed by banks using correspondent
banking channels.
The picture is different in the retail payments market, where money transfer operators (MTOs) have
been competing with banks in remittance payments. MTOs are based on a network of physical
agencies that handle cash payments at both ends (cash to cash payments). MTOs vary in size from
regional operators that focus on a limited number of countries, to international operators that offer a
nearly worldwide coverage. This closed loop functioning allows MTOs to process fund transfers end
to end in a short period of time.
A new generation of providers, namely fintechs, has started to target account-to-account

cross-border payments. These are often e-money institutions that facilitate cross-border payments
through wallets and networks of accounts across jurisdictions. For a transfer some offers may
leverage on domestic payment instruments and domestic payment systems in order to speed up
cross-border payments and drive down costs. Following this model, a cross-border payment is split
into two domestic payments: the institution acts as the receiving counterparty to the originator and as
the emitting counterparty to the receiver. This may lead to new areas of concern, like whether the split
of the end-to-end transaction into two payments may result in the loss of certain information, e.g. the
bank of the payer may not know who the payee is, and the bank of the payee may not know about the
payer. This may raise questions about how transactions are adequately screened for AML/CFT
compliance. Going forward, the Eurosystem plans to further assess challenges linked to the use of
domestic systems for cross-border payments.

Another emerging alternative is global stablecoins 17 that claim to address frictions in cross-border
payments and provide payments within their respective networks on an almost instant basis. The
Eurosystem is closely monitoring market developments in the area of stablecoins, as well as
engaging in the respective discussions at the level of the global standard setting bodies. Additionally,
overseers periodically review the adequacy of the oversight framework in view of stablecoins and
other innovative payment mechanisms.
17
Stablecoins can be defined as “digital units of value that are not a form of any specific currency (or basket
thereof) but rather, by relying on a set of stabilisation tools, try to minimise fluctuations in their price in
such currencies” – see Bullmann, D., Klemm, J. and Pinna, A., “In search for stability in crypto-assets:
are stablecoins the solution?”, Occasional Paper Series, No 230, ECB, Frankfurt am Main, August 2019.

3 Modernisation of correspondent banking
Retail and corporate customers have come to expect better prices and higher levels of
transparency, convenience and speed from banks. This chapter presents innovations
in the correspondent banking sector and explores the measures implemented by the
banking industry to address challenges in the provision of cross-border payments.
3.1 Improvements in the processing of payments

The efficiency of correspondent banking depends on the underlying messaging
technology, back office processing (improvement in compliance and due diligence
processes) and the level of standardisation. In this regard, major advancements are
underway.
3.1.1 ISO20022
Currently, correspondent banks use the SWIFT MT format for the transmission of
cross-border payments. In order to be processed, and for back-offices to run
appropriate checks, the information of MT messages often needs to first be converted,
as standardised information is limited and includes free format text. After the
transaction has been checked, it can be continue to be processed. Of course this
process risks errors and takes time.
Cross-border payments are set to migrate from the MT message to ISO20022

message. The new message format allows for the inclusion of richer data and is better
suited for automated processing. In this regard the replacement of MT message by the
ISO20022 format will enable faster processing and improved reconciliation. SWIFT
will start to roll out the new format in cross-border payments starting end 2022. 18
3.1.2 Unique End-to-end Transaction Reference/SWIFT GPI
Another important change is the introduction of the Unique End-to-end Transaction

Reference (UETR) in the payment message. The UETR is a transaction identifier that
allows correspondent banks to track a transaction along the payment chain in real
time. This makes it possible for banks to offer to their customers the possibility of
tracking the status of a payment. The introduction of the UETR is part of a broader
initiative launched by SWIFT to modernise cross-border payments. The initiative
labelled GPI (Global Payment Innovation) was launched in February 2017. It
combines standardised business rules and new technical functions such as the UETR.
The aim of this initiative is to improve correspondent banking services and provide
fast, transparent and cheap payments that are fully trackable from end to end.
18
See ISO 20022 Programme, SWIFT.
Eleventh survey on correspondent banking in euro – Modernisation of correspondent banking 14

According to SWIFT, a large proportion of correspondent banking transactions are
already processed in compliance with the GPI rulebook, as a growing number of
banks join the initiative. Service-providing banks note straight-through-processing
rates have improved and helped to provide transparency on fees.
As correspondent banks migrate to the new standards and upgrade their internal
systems, the time to complete a cross-border transaction could be dramatically
reduced. A recent trial conducted by the ECB demonstrated, using TIPS (the
Eurosystem’s instant payments settlement platform in central bank money), SWIFT
and banks themselves, that it is possible to complete a cross-border payment from
Asia to Europe within minutes. Despite the involvement of three intermediary banks,
the fastest payment was able to reach its beneficiary in only 41 seconds. 19
Box 3
International work on enhancing cross-border payments
At the end of 2019 the G20 decided to make enhancing cross-border payments a priority during the
2020 Saudi Arabian Presidency. The FSB and the CPMI have been given key roles in the policy work
and have developed a roadmap to enhance cross-border payments. The aim is to address problems
of high costs, low speed, limited transparency and limited access to cross-border payments. As a part
of the three-stage process, the Stage 1 report 20, prepared by the FSB and published in April 2020,
provides an assessment of existing cross-border arrangements and identifies underlying frictions
associated with cross-border payments such as: high costs; slow payment processing; limited access
for users of services, payment service providers and payment systems; and limited transparency
regarding costs, speed, processing chain, and payment statuses.
The Stage 2 report 21, prepared by the CPMI, identifies 19 building blocks where further joint public
and private sector work could mitigate one or more of the cross-border payment frictions identified in
the Stage 1 report. The overview of the focus areas and linked building blocks is shown in Figure A.
The first 16 building blocks are organised in four focus areas which seek to enhance the existing
payment ecosystem, namely: (A) Public and private sector commitment; (B) Regulatory, supervisory
and oversight frameworks; (C) Existing payment infrastructures and arrangements and (D) Data and
market practices. A further three building blocks under focus area (E) aim to explore the potential that
new payment infrastructures and arrangements, e.g. what stablecoins and central bank digital
currencies, could offer in terms of enhancing cross-border payments. Some aspects of the last three
building blocks require further analysis before their potential implementation as they could pose
significant risks to the transmission of monetary policy, financial stability, and the safety and efficiency
of payment systems, among other things. Therefore, their potential for cross-border payments is yet
to be fully assessed.
Building on the efforts of the stage 1 and 2 work, the Stage 3 22 roadmap to enhance cross-border
payments, outlining practical steps setting firm timeframes for the first two years and more indicative
19
See Terol, Ignacio, “SWIFT gpi instant: making instant cross-border payments a reality”, ECB,
September 2019.
20
See “Enhancing Cross-border Payments – Stage 1 report to the G20: Technical background report”,
FSB, April 2020.
21
See “Enhancing cross-border payments: building blocks of a global roadmap – Technical background
report”, CPMI July 2020.

timeframes thereafter, and providing clarity on who does what, has been published by the FSB, which
was endorsed by the G20 Finance Ministers and Central Bank Governors meeting on 14 October
2020. The roadmap emphasises that a cooperative approach between the public and private sector is
needed to solve the problems.
Figure 3
Overview of focus area and building blocks
1. Developing a common cross-border

payments vision and targets;
2. Implementing international
guidance and principles;
3. Defining common features of cross-
border payment service levels;
A) Public and
private sector
commitment
17. Considering the feasibility of 4. Aligning regulatory, supervisory and

new multilateral platforms oversight frameworks for cross-
and arrangements for cross- border payments;
E) New
border payments; B) Regulatory, 5. Applying AML/CFT rules consistently
payment
18. Fostering the soundness of supervisory and comprehensively;
infrastructures
global stablecoin and oversight 6. Reviewing the interaction between
and
frameworks
arrangements for cross- arrangements data frameworks and cross-border
border payments; Enhance payments;
19. Factoring an international cross-border 7. Promoting safe payment corridors;
dimension into CBDC design. payments 8. Fostering KYC and identity
information sharing;
C) Existing
D) Data and payment
market infrastructures
practices and
arrangements
14. Adopting a Harmonised ISO 20022 version 9. Facilitating increased adoption of PvP;
for message formats (including rules for 10. Improving (direct) access to payment systems by
conversion/mapping); banks, non-banks and payment infrastructures;
15. Harmonising API protocols for data 11. Exploring reciprocal liquidity arrangements across
exchange; central banks (liquidity bridges);
16. Establishing unique identifiers with proxy 12. Extending and aligning operating hours of key
registries; payment systems to allow overlapping;
13. Pursuing interlinking of payment systems for cross-
border payments;
Source: CPMI report – see footnote 22 in this report.
3.2 Improvements in compliance and due diligence process

Improving the efficiency of due diligence procedures is crucial to reducing overall costs
and increasing the speed of cross-border payments. With this in mind, several
measures are being put in place: first, better screening of transactions, using novel
technologies, and second, the creation of KYC utilities. 23
New technologies have the potential to drive down costs of compliance by facilitating
the screening of transactions. Interviewed banks report that they seek to use big data
analytics, artificial intelligence and machine learning to improve the screening of
transactions against fraud, money laundering, sanctions and other compliance
checks.
22
See “Enhancing Cross-border Payments: Stage 3 roadmap”, FSB, October 2020
23

Compliance checks are already highly automated but lead to a high number of false
positives, while suspicious activities such as money muling 24 remain hard to detect.
More advanced screening could enable banks to identify more complex fraud and
compliance breaches and facilitate the work of compliance teams in their
investigations. The migration to the ISO20022 standard, which enables payment
messages to carry richer structured information and the work of the SWIFT Payments
Market Practice Group (PMPG) could also contribute to better and more efficient
compliance screening. More specifically, the PMPG task force aims to propose best
practices for an efficient implementation of ISO messaging standards. Another key
enabler for more efficient compliance processes specifically concerns the due
diligence process in which a correspondent bank verifies that customer banks have
adequate compliance measures in place. Customer due diligence is associated with
documentation and, consequently, due diligence problems are complex, costly,
time-consuming and labour-intensive. Furthermore, sensitive information is shared
across borders and stored with numerous counterparties, leading to concerns about
privacy. An important achievement has already been accomplished with the creation
of the aforementioned CBDDQ that standardises collected information and minimises
the need for additional information requests. 25
A further improvement is the creation of shared databases which gather KYC

information and make it universally accessible. Such infrastructures are called KYC
utilities and ensure that once a bank has filled information regarding one of its
customer institutions, the information can be accessed by the utility’s members (after
having received permission from the customer), which saves time and costs. The
effectiveness of KYC utilities is subject to the industry agreed definition of a
standardised data set that all utilities should collect as a minimum. The increased use
of the LEI would lead in the same direction. The CPMI is working to mitigate the
challenges arising from the multijurisdictional nature of cross-border activity. It has
developed building blocks for a global roadmap (i.e. building blocks 5, 6 and 8) with
the aim of developing advanced, consistent international rules and standards. 26
24
Money muling involves laundering money using people recruited to withdraw or wire stolen funds to
accounts located overseas.
25
26
See footnote 21 and 22 in this document.

4 Results of the eleventh correspondent
banking survey
4.1 Main takeaways

Despite the wide variation in the type of correspondent banks responding to the
survey, the results are broadly in line with the trends identified in the previous editions.
In particular, we observe a decrease in the total turnover as well as in the number of
customer banks. At the same time we see an increase in the number of transactions –
both in absolute terms and as an average per service-providing bank – which results
in a drop in the average size of transactions.
The revised 2019 survey also provides a breakdown of values and volumes by
location. Transactions, where both the originator and the beneficiary are located in the
euro area, account for over a third of the total value of transactions and mainly consist
of providing the originator’s bank with indirect access to retail payments systems.
Furthermore, the share of transactions originating in the euro area to the rest of the
world is remarkably similar to the share of transactions going in the opposite direction.
Correspondent banking remains an important channel for institutions to access

payments systems as indirect participants or to settle non-standardised transactions
which cannot be handled within payment systems. A large share (69% in value and
84% in volume) of payments originated through correspondent banking arrangements
are channelled through payment systems, while the others are processed solely
through correspondent banking arrangements. The systemically important payment
systems (especially TARGET2 and EURO1) in the euro area account for the vast
majority of settlements (approximately 98% of total value) of payments that originated
through correspondent banking arrangements.
The correspondent banking industry remains very concentrated with a few players
accounting for the majority of turnover. Although the market concentration measures
seem to have stabilised, there is a tendency towards a decreasing role of smaller
banks in the correspondent banking business, whereas larger banks maintain or even
enlarge their activities in the sector. We observe a decline in the number of
relationships, likely as a result of the reasons outlined above, namely a growing
tendency to assess the profitability and risks of the business lines, customers and
jurisdictions and to avoid relationships where the business returns do not justify the
cost of investment or where there are risks that banks are not willing to take.
Finally, the observed decrease in the length of correspondent banking chains appears
to be consistent with the trend towards increased specialisation in the industry. One
possible explanation is that banks try to minimise the length of correspondent banking
chains, so as to limit the costs associated with a large number of parties involved.
Therefore, larger, more specialised banks with more direct relationships are more
profitable and competitive in the correspondent banking business.
Eleventh survey on correspondent banking in euro – Results of the eleventh correspondent

banking survey 18
4.2 Methodology
Since 1999, the Eurosystem has conducted regular surveys on correspondent
banking activities in euro to monitor their importance and development over time.
Since the eighth survey in 2012, the Eurosystem has published reports presenting the
key results for each survey.
In line with previous surveys, the eleventh survey covers correspondent banking
transactions denominated in euro. For data not related to the daily turnover, such as
the number of customer banks or total overdraft limits, figures were reported as of the
last business day of the month.
Respondents to the survey are banks in the euro area that have an average daily
turnover which exceeds the €1 billion threshold on their loro accounts. Participation in
the survey is voluntary. Overall 15 banks located in 6 euro area countries participated
in this edition of the survey. The number of participants has significantly decreased
over time from over 30 participants in 2003 to less than 20 in 2016 and 2019 (see
Table 1). Based on this development, the Eurosystem is reviewing its future approach
to this survey to ensure that collected information remains representative. To this
extent the outcome of the recent survey needs to be read with awareness of the
limited number of participants. It should also be noted that the largest players
participated in this survey and in past surveys, which allows for some cross-survey
comparison and trend analysis.
The eleventh survey was conducted based on a revised questionnaire that is

reproduced in Annex 1 of this report. Since 2016 a new set of supplementary
qualitative questions has been introduced with the aim of identifying the reasons
behind the business evolution observed in the quantitative questionnaires (see
Annex 2).
The report does not disclose any individual bank or country-specific data in order to
ensure the anonymity of the banks surveyed and to protect the confidentiality of the
information provided.
4.3 Characteristics of the correspondent banks participating in

the survey
As in previous surveys, the sample shows a significant variation in the payment profile
of individual respondents. The average transaction value at the level of banks ranges
from around €1,000 to over €3.5 million. This extremely wide range is in line with
previous surveys, however the value at the upper end of the spectrum more than
halved compared to previous surveys.

banking survey 19
Chart 3
Sample overview
(y-axis: average size of transactions (EUR millions); daily average)
0
2012 2014 2016 2019

Note: The ends of the box are the upper and lower quartiles, the median is marked by the horizontal line inside the box and the whiskers
extend to the highest and lowest observations.
As shown in Chart 3, the sample of respondent banks is characterised by different

business models. Banks with a low average value per payment mainly provide indirect
access to retail payment systems for the clearing and settlement of retail payment
instruments (i.e. settlement of card, cheque and other low-value transactions). Banks
with a high average value per payment are predominantly active in securities
settlement, money market trades, and in the provision of indirect access to large-value
payment systems.
To account for the different business models, when relevant and possible, the survey
results differentiate between retail and wholesale banks, based on the average size of
their transactions. 27 In 2019 twelve wholesale banks responded to the survey, with
four of them reporting an average value of transactions over €1 million indicating a
clear specialisation in wholesale payments. The number of wholesale banks has
decreased from previous years. On the other side of the spectrum, three banks have a
clear specialisation in retail payments, compared to two in the previous surveys.
27
Banks with an average transaction size (total turnover divided by the total number of transactions) of less
than €10,000 are classified as retail banks, while all others are classified as wholesale banks

banking survey 20
Chart 4
Sample overview by category
(y-axis: number of respondents; units)
Retail
Wholesale
30
25
20
15
20
20
10
14 12
4 3
2 2
0
2012 2014 2016 2019
It is important to note that the interpretation of the evolution of Chart 4 needs to be

read with care as it does not necessarily reflect changes in the overall correspondent
banking market. Certain changes are simply the consequence of threshold effects and
volatility in the set of participating banks (participation is voluntary).
4.4 Correspondent banking activity in value and volume

This section includes a trend analysis based on the findings of the last eight surveys,
i.e. the surveys conducted between 2003 and 2019. To account for the introduction of
the threshold in the average daily turnover, the trend analysis only considers data
reported by banks that were above the threshold.
Table 1
Overview of correspondent banking activity over time across surveyed banks
Total Average per service providing bank
Total No of No of Turnover No of No of
turnover transactions customer (EUR transactions customer Transaction
Respondents (EUR million; (thousands; banks million; (thousands; banks size
included daily daily (unit; end daily daily (unit; end (EUR; daily
(unit) average) average) of period) average) average) of period) average)
2003 34 651,699 20,556 24,871 19,168 605 732 31,704
2005 29 897,042 26,186 21,508 30,932 903 742 34,257
2007 32 1,370,275 22,592 19,191 42,821 706 600 60,652
2010 28 995,807 22,211 18,309 35,565 793 654 44,835
2012 24 1,115,846 24,485 14,198 46,494 1,020 592 45,573
2014 22 966,302 25,506 12,207 43,923 1,159 555 37,886
2016 16 878,459 26,397 9,754 54,904 1,650 610 33,279
2019 15 685,978 36,293 7,695 45,732 2,420 513 18,901

Note: The historical comparisons cannot account for the substantial variations in the sample of respondent banks.

banking survey 21
4.4.1 Evolution of value
The value of correspondent banking transactions processed by the surveyed banks

decreased by 22% from €878 billion in 2016 to €686 billion in 2019. The wholesale
sector contributed to this downward trend with a 26% decrease in value of wholesale
transactions which counteracted the 92% increase recorded by retail transactions.
The changes in the composition of the sample of respondents may have contributed to
this decrease but the reported figures certainly hint at a decrease in correspondent
banking activity.
Chart 5
Turnover of correspondent banking transactions by category
(y-axis: value of transactions (EUR millions); daily average)
Retail
Wholesale
1,400,000 1,370,275
1,200,000
1,115,846
995,807 966,302
1,000,000
897,042 878,459
800,000
651,699 685,978
600,000
400,000
200,000
0
2003 2005 2007 2010 2012 2014 2016 2019
At the individual bank level, seven banks reported a transaction value above
€20 billion per day (compared to six in 2016, eight in 2014 and nine in 2012), while
another two banks reported figures of between €10 billion and €20 billion per day
(compared to four in 2016 and two in 2014 and 2012). The six remaining banks
showed a turnover of between €1 billion and €10 billion (compared with six in 2016
and compared to twelve in 2014 and thirteen in 2012).
In terms of share, following a period of consolidation between 2007 and 2016, the
2019 data shows an increase in the importance of the retail segment, as its share
increased from 4% in 2016 to 9% in 2019.
4.4.2 Evolution of volume
The volume (or number) of correspondent banking transactions remained fairly stable
until 2019, when it increased by 37% from €26 million in 2016 to €36 million in 2019. In
general the number of retail transactions remains constant as it mostly consists of
regular payments such as remittances, wages, insurance premiums and utilities. In
2019, both the retail and the wholesale sector contributed to the increase with
respective growth rates of 38% and 34% compared to 2016.

banking survey 22
Chart 6
Volume of correspondent banking transactions by category
(y-axis: volume of transactions (thousands); daily average)
Retail
Wholesale
40,000
36,293
35,000
30,000
26,186 26,404
25,506
25,000 24,485
22,592 22,211
20,556
20,000
15,000
10,000
5,000
0
2003 2005 2007 2010 2012 2014 2016 2019
Of the fifteen banks participating in the 2019 survey, three service-providing banks
processed more than one million transactions per day (up from two in previous years);
these banks mostly focus on domestic retail transactions. Eleven banks processed
more than 10,000 transactions per day, up from nine in 2016 although down from
fourteen and thirteen in 2014 and 2012. The remaining bank processed less than
10,000 transactions per day (down from five in 2016, six in 2014 and nine in 2012).
The share of retail (97%) and wholesale (3%) transactions remains constant when
compared with 2016.
4.4.3 Evolution of average size
While the average daily value of transactions has constantly decreased in recent
years, the volume of these transactions moved in the opposite direction. This resulted
in a decrease in the average size of transactions which has declined since 2007, with
the exception of 2012. In 2019 the average size of transactions was just below
€19,000, down from over €33,000 in 2016, €38,000 in 2014 and €46,000 in 2012. It is
likely that this relates to changes in the composition of the sample and to more retail
banks participating.
4.4.4 Analysis by location of the originator and beneficiary
In the 2019 survey, for the first time, volumes and values of transactions are divided
based on the location of the originators and beneficiaries. According to the reported
figures, one-third (36.4%) of transaction in value correspond to euro-domestic
transactions, i.e. payments where the originator and beneficiary are both located in
the euro area. This activity corresponds primarily to the provision of indirect access to
payment system to the originator’s bank and concerns in majority retail transactions
with an average value of €7,234.

banking survey 23
Two-thirds (64.6%) of the total value of transactions are international payments,
i.e. where the originator and/or the beneficiary are located outside the euro area.
International payments are primarily wholesale payments with an average value of
€179,486. In international payments, transactions that are originated and received
outside the euro area represent the smallest share in volume (0.3% compared to
around 3.0% for the other types of cross-border payments) but the largest share in
value (27.7%) and the largest average size (€1.9 million in comparison to around
€100,000 for the other types of cross-border payments).
The share of transactions that originated in the euro area and were received in the rest
of the world is remarkably similar to the share of transactions that originated from the
rest of the world and were received in the euro area, i.e. the share of transactions that
originated in the euro area amounts to 54.4%, and the remaining 45.6% of
transactions originated outside the euro area).
Chart 7
Share of value of transaction by location
(as a percentage of the total daily value)
Non euro area →

non euro area
27.7%
Euro area→ euro area
36.4%
Non euro area→

euro area
18.0%
Euro area→ non euro

area
18.0%
Chart 8
Share of volume of transactions by location
(as a percentage of the total daily volume)
Euro area →
Non-euro area
3.2%
Non-euro area →
euro area
3.1%
Euro area → euro area
93.4% Non-euro area →
non-euro area
0.3%

banking survey 24
4.4.5 Use of payment systems
A large share of payments that originate through correspondent banking

arrangements are channelled through payment systems. The remainder is settled
bilaterally between banks. In the 2019 survey, 69% of the total transaction values, and
84% of the total transaction volumes, are reported to have been settled via payment
systems. In the previous survey, 40% of the total values and 93% of the total volumes
were settled via payment systems.
Furthermore, in most of the cases, the use of a payment system results from an
indirect participation arrangement, i.e. the indirect participant uses a direct participant
as an intermediary to perform some of the activities allowed in the system. This
practice has traditionally been used by smaller domestic banks, as well as financial
institutions, to access payment systems located outside their country. In the 2019
survey, 80% of the transactions settled via payment systems involve indirect
participants. This confirms that a large part of the correspondent banking activity for
euro payments by euro area banks consists of offering indirect access to payment
systems.
Table 2
Share of transaction settled via payment systems
2016 2019
As a share of all As a share of all

Actual figure transactions Actual figure transactions
Volume of c.b. payments settled in Payment

Systems 24,512,786 93% 6,640,872 84%
Where the customer bank is an indirect

participant in the payment system - - 6,391,307 80%
Value of c.b. payments settled in Payment

Systems 341,708,684,567 40% 339,598,297,144 69%
Where the customer bank is an indirect

participant in the payment system - - 222,659,261,096 45%

Notes: Not all banks responded to the question. In this instance “c.b.” refers to correspondent banking.
Regarding distribution of transactions among payment systems, TARGET2 remains

the most important system in terms of value. Its share of transactions continues to
increase from 75% in 2014 to 78% in 2016 and 79% in 2019. The share of EURO1 has
remained constant from 2016 (19%), whereas a small minority of transactions (2%)
are settled via other payment systems such as STEP2-T or other retail payment
systems. Regarding volumes, nearly all payments are processed via retail payment
systems, e.g. STEP2-T.

banking survey 25
Chart 9
Settlement of correspondent banking payments through payment systems (by value)
(value-weighted; percentages)
TARGET 2
EURO 1
Others
90%
76.8% 78.2% 78.6%
80% 74.6%
70%
60%
50%
40%
30% 23.0%
21.4%
18.5% 19.2%
20%
10% 3.3%
1.8% 2.5% 2.2%
0%
2012 2014 2016 2019
4.4.6 Intraday and overnight overdrafts
Compared to the previous surveys, in the 2019 there seems to be an increasing share
of customer banks that are granted access to intraday credit. However, as only a few
respondents answered this section of the questionnaire, the figures might not be fully
representative.
Intraday credit offers flexibility to banks using correspondent services, as it allows

customer banks to have a debit position on their nostro accounts with the
correspondent bank during the business day. After having reached its lowest level in
2014, with only 19% of customers having access to intraday credit, more than 40% of
customer had such access in 2019. In parallel, the total intraday limit, i.e. the
aggregation of the limits for all customers, went from 8% in 2012 to 47% in 2019 of the
total average daily turnover. Yet, the maximum total value of intraday credit actually
used by customer banks across all loro accounts in the reporting period is only 8%.
Overnight overdrafts are available to 23% of customer banks. Compared to previous

years, the 2019 survey shows an increase in the overnight overdraft limits from 2% of
total turnover to 23%. Despite the increase of the authorised limits, actual usage of
overnight overdrafts remains at a low level. As before, the limited response rate might
explain this significant variation over time.
Overall, the increasing limits granted to customers, whether intraday or overnight,

suggest that service-providing banks have more confidence in customers.

banking survey 26
4.5 Evolution of the correspondent banking market
The Eurosystem survey indicates that correspondent banking has become a more
specialised industry. The survey shows that, in a global context where the overall
number of correspondent banking relationships is declining, large service-providing
banks have consolidated their markets in terms of volumes, values and number of
customer banks. The results of the 2019 survey also provide some support to the
hypothesis that the specialisation of the correspondent banking business is the
primary driving force behind the reduction in correspondent banking relationships.
The survey confirms the steady decrease in the number of customer banks with a
decline from 9,754 in 2016 to 7,695 in 2019. The number of customer banks by
correspondent banks also shows a slight decrease over the period 2012 to 2019.
Compared to the 2016 survey, the average number of customer banks per surveyed
bank declined on average by 16%.
At first glance, the relative stability observed since 2003 stands in contrast with the
global decline of the number of correspondent banking relationships measured by the
CPMI since 2011. 28 However, an overall reduction in the number of active
correspondents 29 is compatible with a stable number of customer banks of large
service-providing banks.
The declining number of relationships and the stable number of customers of large
correspondent banks implies that correspondent banking services are not necessarily
offered on a reciprocity basis, but have become an asymmetric business.
Chart 10
Evolution of the average number of customer banks by respondent
Customer banks
Euro area customer banks
Non-euro area customer banks
800
700
600
500
400
732 742 287
654
300 600 592 610
555
200
100 226
0
2003 2005 2007 2010 2012 2014 2016 2019
28
Between 2011 and 2018 the number of active correspondent banking relationships declined by 20% at
the global level. See “New correspondent banking data – the decline continues”, CPMI, Bank for
International Settlements, May 2019.
29
In the CPMI report, an active respondent is a bank that has sent or received SWIFT messages corridor by
corridor. An active corridor is defined as a country pair that processed at least one transaction. As a
result, correspondents present in more than one corridor are counted several times. See “New
correspondent banking data – the decline continues”, CPMI, Bank for International Settlements, May
2019.

banking survey 27
The survey indicates that out of the 513 customer banks, 56% are reported to be
located outside the euro area. However, the share of euro area and non-euro area
customers varies a lot from one respondent to the other.
Banks that serve predominantly non-euro area banks tend to have lower volumes and
higher values, which is coherent with the wholesale nature of cross-border payment
activity. However, banks that serve predominantly euro area banks tend to have higher
volumes and lower values. This reflects their role as a provider of indirect access to
euro retail payment systems.
4.5.1 Concentration among surveyed banks
The correspondent banking market remains a very concentrated market, with a few
key players accounting for the majority of the turnover. The concentration ratio of the
biggest four banks by turnover has fallen to 82% after having reached a peak at 85%
in 2016.
Table 3
Concentration among service-providing banks
Turnover Volume
2019 2016 2014 2012 2019 2016 2014 2012
Concentration ratio 4 82% 85% 83% 80% 70% 2% 2% 4%
Concentration ratio 8 95% 95% 94% 91% 71% 71% 30% 55%
After increasing for several years, the concentration ratios have plateaued. This is also
reflected by the fact that the number of banks that reach the threshold has stabilised
compared to the previous edition of the survey.
On the side of customer banks, the market is also fairly concentrated for wholesale
payments. The largest customers make for a high share of the total value processed.
On average, the five largest customer banks account for 43% of the total value of
correspondent banking transactions that the bank processes.
The result for wholesale payments stands in contrast with that of retail payments,
which are very evenly distributed among customer banks. Looking at the
concentration of payment volumes, the five largest customer banks only make for 12%
of the total volume of transactions. The fact that 77% of the volumes are attributed to
institutions that are ranked 50+ shows that volumes are evenly distributed among
customer banks.

banking survey 28
Chart 11
Value and volume of transactions by largest customer banks
(percentage of the total daily value/volume)
Top 5 Top 50
Top 10 Rest
Top 20
100%
12%
3%
80% 4%
43% 3%
60%
10%
40% 10%
77%
5%
20%
31%
0%
Value % Volume %
4.5.2 Length of correspondent banking chains
In its 2018 data report, the FSB noted that the increase in the volume of transactions
combined with a reduction in the number of correspondent banking relationships might
be linked to longer correspondent banking chains. 30 Indeed, if a correspondent bank
terminates a relationship, the customer bank might have to channel its payments via a
different route involving more intermediary banks. As a consequence of the
correspondent banking chain becoming longer, the volume of transaction could
artificially increase. This means the length of the correspondent banking chain gives
an important indication of the market structure. The more intermediaries involved
between the sending bank and the receiving bank, the higher the cumulated fees.
The 2019 edition of the survey included, for the first time, a question on the number of
banks involved in a correspondent banking chain. The results show that the majority of
payments (39%) are processed via three correspondent banks, i.e. with one
intermediary bank between the sending and the receiving bank. 20% of payments are
processed via five or more correspondent banks and 25% of payments are processed
directly from the sending to the receiving bank, i.e. with no intermediary, meaning that
the service-providing banks are themselves important senders and receivers of
payments.
Overall, it seems that banks choose to maintain a number of correspondent banking

relationships, which minimises the length of chains. This is consistent with the
specialisation pattern observed in the correspondent banking industry. Large
service-providing banks concentrate large volumes, which justify the establishment of
more direct correspondent relationships compared to smaller institutions.
30
See “FSB Correspondent Banking Data Report – Update”, Financial Stability Board, November 2018.

banking survey 29
Chart 12
Length of correspondent banking chain
45%
39%
40%
35%
30%
25% 24%
25%
20%
20%
15%
10%
5%
0%
Via 2 CoBa Via 3 CoBa Via 4 CoBa Via 5+ CoBa
4.5.3 A look into the future
The strategic line of service-providing banks has not changed in the last two years for
most of the service-providing banks (67%). For the remaining 33% changes were
mainly due to regulatory requirements, appearance of new products (e.g. instant
payments), and risk management considerations (e.g. limited risk appetite in offering
their services in high-risk countries or to high-risk customers).
Respondents had no strong view on the distribution between national correspondent

banking activity and cross-border activity. 17% of respondents reported no significant
change, 42% saw an increase and the remaining 42% witnessed a decrease.
The correspondent banking business is expected to continue to play an important role

in providing payment services. 60% of participants in the 2019 survey declared that
they expect an increase in correspondent banking activities over the medium-term.
However, they also mention a number of factors which increase uncertainty about the
future of correspondent banking – these factors include competition from fintech,
potential new entrants and changes to the regulatory framework.

banking survey 30
Chart 13
Future trends in correspondent banking
67%
70%
60%
60%
50%
42% 42%
40% 33%
30%
30%
17%
20%
10%
10%
0%
YES NO Increased Decreased Stable Increased Decreased Stable
Has your institution’s business Have the correspondent banking activities in Would your institution foresee an
strategy regarding relation to the rest, increased or decreased? increase/decrease in correspondent banking
correspondent banking activities over the medium-term?
services changed over the last
two years?

banking survey 31
5 Conclusion
The findings of the eleventh correspondent banking survey confirm the declining trend
in total turnover and in the number of customer banks. The establishment of PvP
systems for the simultaneous settlement of foreign exchange transactions, and the
integration of securities settlement and central clearing obligation, further contributed
to the declining trend. The constant decrease in turnover and number of
correspondent banking arrangements was also fuelled by changes to regulatory
requirements (for example in relation to KYC, AML/CFT), increasing compliance
costs, and growing AML/FT risks that result in substantial reputational and profitability
risks for banks. As a result, banks that are no longer willing to accept risks that might
affect their profitability or their reputation ‘de-risk’ by shifting their strategies to safer
businesses.
Despite the implementation of the FSB-coordinated action plan, the negative trend
has not reversed yet. Given the consistent limitations of cross-border payments, the
G20 has also engaged and made enhancing cross-border payments a priority.
The results of the survey also provide evidence of a highly concentrated market in
which the largest banks are specialised in correspondent banking services, while the
smaller ones are reducing their market share. The market is particularly concentrated
for wholesale payments where the largest customers account for a disproportionately
high share of the total value processed. Despite the high concentration, market
participants expect fees to decrease as the key players can benefit from the
implementation of automated processes, an increase in transparency, and innovation
in the payments market. The risks associated with such a high market concentration
and the potential spill over of correspondent banking business in the payment system
explain the continuous interest of overseers in monitoring the developments in such a
field.
To gain a better understanding of the type of services offered, the 2019 survey
provides a breakdown of volumes and values by location of the originator and
beneficiary. The share of transactions that originated in the euro area and were
received in the rest of the world is remarkably similar to the share of transactions that
originated in the rest of the world and were received in the euro area. However,
euro-domestic transactions correspond primarily to the provision of indirect access to
payment systems, whereas international payments are primarily wholesale. Overall,
correspondent banking remains an important channel for institutions to access
payment systems as indirect participants. The majority (69%) of the total euro value of
payments that originate via correspondent banking arrangements are channelled
through payment systems, mainly TARGET2 and EURO1.
A second innovative feature of the survey was the introduction of a question on the
number of banks involved in a correspondent banking chain. The results show that the
chains can be fairly short with 25% of payments processed with no intermediary and
39% processed via three correspondent banks. In line with the specialisation pattern
observed, this suggests that banks aim at minimising the length of chains.
Eleventh survey on correspondent banking in euro – Conclusion 32

Finally, despite numerous challenges faced, correspondent banking still plays, and will
continue to play, a key role in the payments markets by allowing bank customers to
make and receive payments in any currency from virtually any counterparty.
Irrespective of the increasing competition from fintech, potential new entrants and
expected changes in the regulatory framework, a slight majority of survey respondents
expect an increase in correspondent banking activities over the medium-term. The
main factors mentioned as drivers of this trend reversal are increase in demand for
cross-border payments, more efficient services, lower fees and the introduction of new
services. Going forward it will be important to monitor further implications of innovation
and the impact of international work on enhancing cross-border payments.
Eleventh survey on correspondent banking in euro – Conclusion 33

6 Annex 1: General questionnaire for the
2019 survey
(Please refer to the survey methodology for additional explanations and definitions as
to the questions)
Name of reporting bank*: ………………………………….
(*The name of the reporting bank will be forwarded to the ECB, together with the data
(for the purpose of analysing interdependencies in the financial market with a view to
promoting financial stability), unless the reporting bank requests the home NCB to
make the data anonymous before transmitting it to the ECB)
General questionnaire
0. Please describe any difficulties encountered when reporting information for a specific question in the quantitative
survey. If appropriate, please indicate if and why the situation might change in future.
1. Number of customer banks

(Number of institutions, not the number of accounts provided to each institution.)
1.1. Number of euro area customer banks
1.2. Number of non-euro-area customer banks
2. Number of transactions (daily average over the reporting period)

(All credit and debit entries registered on all accounts of the customer banks, such as large-value, retail, domestic, cross-border
payments, fees)
2.1. Where the originator and beneficiary are both located in the euro area
2.2. Where the originator is located in the euro area and the beneficiary is located outside the euro area
2.3. Where the originator is located outside the euro area and the beneficiary is located in the euro area
2.4. Where the originator and beneficiary are both located outside the euro area
3. Value of transactions (daily average over the reporting period)

(All credit and debit entries registered on all accounts of the customer banks, such as large-value, retail, domestic, cross-border
payments, fees)
3.1. Where the originator and beneficiary are both located in the euro area
3.2. Where the originator is located in the euro area and the beneficiary is located outside the euro area
3.3. Where the originator is located outside the euro area and the beneficiary is located in the euro area
3.4. Where the originator and beneficiary are both located outside the euro area
4. Transactions of the largest customer banks
4.1. Number of transactions (daily average over the reporting period) by the top 5/top 10/top 20/top 50 customer banks
4.2. Value of transactions (daily average over the reporting period) by the top 5/top 10/top 20/top 50 customer banks
5. Importance ratio for loro accounts

Share of payments accounted for by transactions booked on loro accounts of customer banks as a percentage of the total of
transactions on all euro accounts of your institution
5.1. In terms of volume, expressed as a percentage
5.2. In terms of value, expressed as a percentage
Eleventh survey on correspondent banking in euro – Annex 1: General questionnaire for the
2019 survey 34
6. Number of transactions settled in payment systems
(Share of payments received or forwarded to a payment system as a percentage of the total number of transactions booked on
loro accounts)
6.1. All payments in terms of volume received from, or forwarded to, payment systems
6.2. Percentage share of 6.1 where the customer bank is an indirect participant in the payment system
6.3. Share of individual payments systems in settling customer banks’ payments forwarded to, or received from, payment
systems
(Three options: TARGET2, EURO1, other payment system. Breakdown by payment system of the settlement of customer
banks’ payments forwarded to, or received from, payment systems counted in Question 2. The shares of the payments systems
used should add up to 100%.)
7. Value of transactions settled in payment systems

(Share of payments received or forwarded to a payment system as a percentage of the total value of transactions booked on
loro accounts)
7.1. All payments in terms of values, received from, or forwarded to, payment systems
7.2. Percentage share of 7.1 where the customer bank is an indirect participant in the payment system
7.3. Share of individual payment systems in settling customer banks’ payments forwarded to, or received from, payment
systems
(Three options: TARGET2, EURO1, other payment system. Breakdown by payment system of the settlement of customer
banks’ payments forwarded to, or received from, payment systems counted in Question 3. The shares of the payments systems
used should add up to 100%.)
8. Intraday overdrafts
(Negative balance on the account of a customer bank during the day)
8.1. Number of customers eligible for intraday overdrafts on their accounts
8.2. Total value of intraday overdraft limits across all euro-denominated loro accounts on the last day in the reporting
period
8.3. Maximum total value of intraday overdrafts actually used by customer banks across all loro accounts in the reporting
period
9. Overnight overdrafts
(Negative balance on the account of a customer bank overnight)
9.1. Number of customers eligible for overnight overdrafts on their accounts
9.2. Total value of overnight overdraft limits across all euro-denominated loro accounts on the last day in the reporting
period
9.3. Maximum total value of overnight overdrafts actually used by customer banks across all loro accounts in the
reporting period
10. Efficiency
(All values reported are based on a single business day that can be considered representative of a normal day)
10.1. Average time to completion of a transaction (in minutes)
10.2. Percentage share of transactions that are processed straight through
10.3. Percentage share of transactions that are processed via 2/3/4/5+ correspondent banks, including the bank of the
payer and the bank of the payee
10.4. Average fee collected per transaction processed
Eleventh survey on correspondent banking in euro – Annex 1: General questionnaire for the
2019 survey 35
7 Annex 2: Additional questionnaire for the
2019 survey
Qualitative questionnaire
1. Describe the main correspondent banking services offered by your institution
(cash management, international wire transfers, cheque clearing, payable-through or nested account and FX services).
2. Describe in general the strategic line of your institution for providing correspondent banking services
(criteria for accepting or rejecting correspondent banking services to foreign institutions, e.g. type of institution or business lines
in which it engages at home, country of origin).
3. Has your institution’s business strategy regarding the provision of correspondent banking services changed over the
last two years?
If yes, please explain why.
4. Have the correspondent banking activities in relation to the rest of your institution’s business lines, increased or
decreased?
5. What are the correspondent banking services provided by your institution that have increased/decreased? Please
explain the main reasons ordered according to their importance.
6. Would your institution foresee an increase/decrease in correspondent banking activities over the medium-term?
Please name reasons for this.
7. If certain of your institution’s customer banks are eligible to overdrafts, please describe how usage of intraday
overdrafts is monitored during the day and explain the measures applied to minimise potential liquidity risk arising
from unexpectedly high usage of the intraday and overnight overdrafts, as well as the measures to minimise the credit
risks of overdrafts that may change during the day.
Explain in particular eventual use of collateralisation.
8. Would your institution foresee that correspondent banking becomes more efficient in future in terms of processing
speed, automation and length of the correspondent banking chain? Would you expect fees to increase, decrease or
remain stable?
Please explain.
9. Are there any other developments which your institution wishes to draw attention?
Eleventh survey on correspondent banking in euro – Annex 2: Additional questionnaire for the
2019 survey 36
© European Central Bank, 2020
Postal address 60640 Frankfurt am Main, Germany
Telephone +49 69 1344 0
Website www.ecb.europa.eu
All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged.
For specific terminology please refer to the ECB glossary (available in English only).
PDF ISBN 978-92-899-4434-2, doi: 10.2866/570152, QB-AT-20-001-EN-N

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Eleventh survey on

1 The concept of correspondent banking 5

1.1 Principles of correspondent banking 5

1.2 Role and relevance of correspondent banking 6

2 Trends and challenges affecting correspondent banking 9

2.1 De-risking in correspondent banking 9

2.2 Concentration and specialisation 11

Box 2 Non-banks and the provision of cross-border payments: old and

3 Modernisation of correspondent banking 14

3.1 Improvements in the processing of payments 14

Box 3 International work on enhancing cross-border payments 15

3.2 Improvements in compliance and due diligence process 16

4 Results of the eleventh correspondent banking survey 18

4.1 Main takeaways 18

4.3 Characteristics of the correspondent banks participating in the

4.4 Correspondent banking activity in value and volume 21

4.5 Evolution of the correspondent banking market 27

6 Annex 1: General questionnaire for the 2019 survey 34

7 Annex 2: Additional questionnaire for the 2019 survey 36

Eleventh survey on correspondent banking in euro – Contents 1

Increasing regulatory requirements related to Anti-Money Laundering and Combating

Eleventh survey on correspondent banking in euro – Executive summary 2

Looking ahead, irrespective of the decline in activity, the correspondent banking

Eleventh survey on correspondent banking in euro – Executive summary 3

The report is structured as follows:

• Chapter 1 describes the principle of functioning of correspondent banking;

• Chapter 2 analyses the trends and challenges affecting correspondent banking;

• Chapter 4 presents the quantitative and qualitative results of the survey.

Eleventh survey on correspondent banking in euro – Introduction 4

1.1 Principles of correspondent banking

However, most correspondent banking arrangements involve at least one additional

Nostro account Vostro account Loro account

Eleventh survey on correspondent banking in euro – The concept of correspondent banking 5

Correspondent banking relationships are typically asymmetric meaning that these

B-5 B-6 B-7

Originator Originator’s Bank Correspondent Bank Beneficiary’s Bank Beneficiary

1. The originator instructs the payment

A: Use of correspondent bank only B: Involvement of payment system

1.2 Role and relevance of correspondent banking

Eleventh survey on correspondent banking in euro – The concept of correspondent banking 6

Before the development of multilateral payment systems, correspondent banking

Nevertheless, correspondent banking remains a valid alternative from an efficiency

In addition to processing cross-border payments, correspondent banking provides

Eleventh survey on correspondent banking in euro – The concept of correspondent banking 7

Correspondent banking includes various services, such as international wire transfers,

Aside from the direct provision of payment services to respondent banks,

For payable-through accounts services it is difficult to implement the same due

Source: The banks surveyed.

Eleventh survey on correspondent banking in euro – The concept of correspondent banking 8

2.1 De-risking in correspondent banking

Eleventh survey on correspondent banking in euro – Trends and challenges affecting

Eleventh survey on correspondent banking in euro – Trends and challenges affecting

2.2 Concentration and specialisation

Eleventh survey on correspondent banking in euro – Trends and challenges affecting

Would you expect fees to increase, decrease or remain stable?

Source: The banks surveyed.

A new generation of providers, namely fintechs, has started to target account-to-account

Eleventh survey on correspondent banking in euro – Trends and challenges affecting