De-risking and compliance costs drive banks to exit relationships, straining cross-border payments for small island nations.

Magnitude of the Global Decline

The global correspondent banking network has lost roughly a quarter of its active relationships since 2011, with Asia-Pacific corridors—especially small island states—facing the steepest cuts, threatening the stability of international payments for vulnerable economies. According to the Bank for International Settlements (BIS) Committee on Payments and Market Infrastructures (CPMI), the number of active correspondent banking relationships declined by approximately 20% between 2011 and 2018, by 22% from 2011 to 2019, and by roughly 30% from 2011 to 2022. The number of active corridors—the unique country-to-country links through which cross-border payments flow—fell by approximately 10% between 2011 and 2018.

These declines occurred even as the total volume and value of transactions processed through the network grew substantially. Over the 12 years to 2022, transaction volume rose 61% and total transaction value increased 37%, according to Reserve Bank of Australia (RBA) data citing BIS 2023 figures. This divergence—fewer relationships handling more payment traffic—indicates a concentration of activity among a smaller set of correspondent banks, reducing redundancy and increasing systemic fragility for countries dependent on a narrow set of banking links.

Index (2011 = 100) (Index)Source: Orionmano Industries

Key Drivers: De‑risking and Compliance Pressures

The contraction in correspondent banking relationships is not a market-driven phenomenon of declining cross-border trade. Rather, BIS analysis identifies anti-money laundering and counter-financing of terrorism (AML/CFT) compliance costs and risk aversion by international banks as the primary structural drivers. Jurisdictions with a longer history of AML/CFT deficiencies lost 25 percentage points more active correspondents than the average country, BIS research found. Corruption and weak AML/CFT compliance regimes are cited as the principal factors pushing banks to terminate or refuse to establish correspondent relationships.

BIS empirical analysis found that stronger macroeconomic performance and trade growth helped sustain relationships in some jurisdictions. However, these positive factors were insufficient to offset the de-risking dynamic in vulnerable regions. Banks reassessing their risk exposure have treated entire country groups—particularly small island developing states and emerging market economies—as elevated-risk cohorts, leading to blanket terminations that do not differentiate between individual banks' compliance records.

Asia‑Pacific: The Epicentre of the Retreat

The global retreat has fallen disproportionately on the Asia-Pacific region, with Oceania and small island developing states experiencing the steepest losses. Between 2011 and 2018, Latin America saw active correspondents decline by approximately 30%, while Oceania suffered a decline of a similar magnitude, according to BIS data. By 2019, small island developing states had lost 41% of their active correspondent banking relationships, the highest rate of decline of any country grouping tracked by the BIS.

Pacific island countries have been particularly hard hit. World Bank staff estimates based on SWIFT and CPMI data show that Fiji and Papua New Guinea experienced declines of over 40% in active correspondents from 2011 to 2020. The RBA reports that the decline in correspondent banking services in South Pacific member countries has been "significant—and larger than the average decline seen globally." For some banks in the region, it has become "difficult and increasingly costly to maintain a sufficient network of correspondent banking relationships to make all their international payments in a cost-effective way."

Decline (%) (%)Source: Orionmano Industries

Consequences and Policy Responses

The impact on small island economies extends beyond bank-level inconvenience. The BIS and RBA warn that further reductions in correspondent banking services risk financial sector disruption and could push users toward unregulated "shadow payments" channels, with negative consequences for growth, financial inclusion, and the integrity of international trade. In the South Pacific, the RBA notes that while banks have so far managed the decline and continue to process cross-border flows, "further decreases in the availability of correspondent banking services would raise the risk of more serious financial sector disruption."

Recognising the systemic implications, the international community has established a four-point action plan to address the decline. The framework—developed through the Financial Stability Board and the BIS CPMI—focuses on strengthening AML/CFT frameworks in affected jurisdictions, improving supervisory guidance, reinforcing the role of the private sector in managing risk appropriately, and enhancing data collection and monitoring. With the primary components now largely in place, attention has turned to monitoring implementation and assessing effectiveness.

The BIS CPMI continues to track the trend and has developed building blocks for a global roadmap aimed at making "durable improvements in cross-border payments." The rate of decline has slowed in recent years—relationships fell 3% from 2018 to 2019 and 4% in 2022 alone—but the trajectory remains downward. The concentration of risk in a smaller correspondent network, particularly for Asia-Pacific island states, will continue to pressure policymakers and central banks to accelerate adoption of alternative payment rails, strengthen regional cooperation, and ensure that the infrastructure supporting cross-border payments does not become a bottleneck for vulnerable economies.