This Selected Issues paper provides an overview of the nature and scope of corresponding banking relationships (CBRs) withdrawals in Cabo Verde and discusses policy options to address this challenge. The paper reports the results of a bank level survey and employs the minimum scope framework developed by Grolleman and Jutrsa (2017) on Cabo Verdean bank level data for 2014–2017. Banks in Cabo Verde have experienced a reduction in CBRs since 2013. Bank level survey shows that the terminations are broad based and involves both the central bank and commercial banks. The impact on the banking system has so far been minimal but banks reported facing increased cost of US dollar transactions. The results using the minimum scope framework shows that value of payment flows declined significantly between 2014 and 2016. There is a need for coordinated efforts by all relevant stakeholders at the institutional, national, and regional levels to contribute their knowledge and skills to the resolution of the problem.
certain share of total payment flows per reporting period. To determine if a loss of an AC is material, a materiality threshold needs to be established. This threshold can be set as a fixed percentage of the total payment flows or as percentage specific to the banking system of the country. This paper uses the system specific approach and set the materiality threshold at 0.4 percent for 2016 and 1.6 percent for 2017. These thresholds correspond to the share of the smallestbank in the payment flows in Cabo Verde. Any withdrawal of a specific AC that account for 1
seems warranted at this time . In the absence of a risk assessment model, the rule of thumb is that a deposit insurance scheme should be able to deal with small and medium size bank failures, as opposed to systemic bank failures or systemic crises. With a fund size of EUR 75 million at 2008 YE, the DIF can perform adequately by covering 9 of the smallestbanks collectively or any of the 20 smallestbanks individually. The fund has a coverage ratio of 1.8 percent (measured as the size of the fund to the amounts of eligible deposits) 5 , which is in line with similar