International correspondent banking is taking on a new definition.
Banking between banks around the globe is shifting from a reciprocal exchange of services and becoming more of a system in which large money- center banks "wholesale" products and services to regional banks, which in turn "retail" them to customers in their markets, according to veterans in the field.
"Large global banks increasingly see their role as wholesale providers of an ever-broadening range of banking services to their 'retail' clients, whether it be to an interim correspondent wholesaler or to a small local bank," said Harold Meyerman, a managing director at Chase Manhattan Corp.
Speaking at a recent conference in Frankfurt organized by the Washington-based Bankers Association for Foreign Trade, Mr. Meyerman said the old arrangements under which two banks handled payments or letters of credit for each other are on the decline.
Instead, he said, banks are looking to sell services, such as global payments and custody, to other banks. These banks have the customers, but don't have the products or back office to handle them and don't want to invest in building them.
He also said that the range of correspondent banking products has expanded beyond traditional payments and trade finance to custody services, capital markets transactions, foreign exchange, financial advisory services, and asset management.
Other bankers agreed strongly with Mr. Meyerman's views, noting that the number of arrangements under which one bank transfers its back-office operations to another has been growing rapidly.
"At the end of the day, the game is played in front of the customers and everything else is in the background," said Darin Naryana, the Dallas-based head of international banking at Banc One Corp., Columbus, Ohio.
"The fact that you're using someone else's network is not relevant to the customer," he said.
Bankers said that the shift in the nature of correspondent banking reflects the broader industrialization of banking.
"Banking is taking on the characteristics of industrial production and distribution," Mr. Meyerman said.
"As bankers, we don't like to think about it, but you're starting to see an awful lot of people from industrial companies coming into banking, because we're basically in the same game."
Still, some analysts expressed doubts about the long-term viability of such relationships.
"Markets are changing much too fast, and arrangements that are based purely on transactions and revenue sharing won't have much longevity," said Jordan J. Lewis, a Washington-based consultant on strategic alliances.
He also said corporate customers can be notoriously fickle. Even if banks want to offer one-stop shopping, there is nothing to prevent corporations from shifting to a competitor, including a nonbank, if that competitor can deliver better service.
"Unless banks achieve real synergies from these arrangements, they are leaving open the door to competition from specialized institutions," Mr. Lewis said.
