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Top 7 Things to Consider When Choosing a Correspondent Bank

Choosing a correspondent bank is difficult.  Maybe your institution has been recently de-risked.  Perhaps you are growing and need a correspondent with different services.  In this post we will be discussing the top 7 things to consider when choosing a correspondent bank.


1. Do I need a specialist?

Depending on the lines of business your financial institution partakes in, the list of available correspondents may change drastically.  If your bank or credit union services cannabis or crypto related companies, a specialist is certainly needed.  Other specialties, such as banking-as-a-service (BaaS) can cause some correspondents indigestion.  It is important to be upfront with your needs because they will come up during due diligence, and if you slip something by, you face being de-risked without warning.

Another consideration is if you have a subset of customers that are immigrants or otherwise have family / assets in a certain country.  You should be able to benefit from the foreign exchange generated by such customers and you may need a specialist institution that can lower costs to that jurisdiction. 

An example would be if you had a lot of Canadian expats as customers.  All correspondents can send funds to Canada, but some may have better pricing than others. 

2. Are they integrated with systems I already use?

This is one of the most important considerations.  The ideal scenario is that you can select the correspondent from a list of approved vendors.  That means no technical (IT) lift!  Every financial institution has a different mix of user interfaces, core systems, and modules.  It can be problematic to move data from one system to another.  Please do not add to the morass with a correspondent that requires file transfers, or worse yet, manual entry. 

3. Do they require manual entry?

This is a big red flag.  Usually this has to do with the inability to integrate with the systems you already have.  Manual entry is ok for transactions that take place once or twice a quarter.  If you using them payments, this can cause more problems than it is worth.

4. Is it a an all-or-none relationship?

Correspondent banks are running a business and they are interested in maximizing profit and reducing risk.  This is understandable.  When they use this in "all-or-none" manner, this presents your institution with an unacceptable risk.  If the asset size mismatch between you and them is enormous, it is easy for them to de-risk you with little notice.  Best practice is to have at least two correspondents, even if one is more like a disaster recovery option.  This adds to vendor due diligence, but to lose the ability to process payments is not worth the risk. 

5. Do they have the product set I need?

While payments tend to dominate the discussion, always check that they have other products and services to make your life easier.  Perhaps they can provide lines of credit or help syndicate loans.  Some have IT or compliance consultancies that can help lower your risk over time. 

Also, consider processing domestic wires and ACH directly with the Federal Reserve.  While not an option for all institutions, if applicable to you, it reduces a lot of risk to be directly connected to the Fed.  In years past this was a cumbersome and expensive affair, but with recent developments, it is now much easier from the IT side and less expensive. 

6. Are they a competitor?

Some correspondents are large banks that also service retail and corporate clients.  If the option is available, consider the banker's banks and corporate credit unions, especially if they cannot compete with you based on their charter. 

7. Price and Timing

Pricing is difficult to compare and assess, but make sure they are adding (or can add) products and services that increase your non-interest income.  They might be able to help with interest income as well.  Timing can be problematic if you are in a hurry, best practice is to have multiple providers so if one drops, you are not left scrambling. 


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