What is the true role and value of custody within correspondent banking?

Abstract

Providing custody for the assets of global investors has become an increasingly specialised business from which many banks have withdrawn. Even among those banks that choose to specialise, the costs of remaining competitive have resulted in mergers and acquisitions, with the result that few banks are now regarded as global custodians. Banks outside this group are faced with the challenge of providing their globally-invested clients with a comprehensive offering or risking losing the broader relationship. This paper seeks to draw a distinction between the process of manufacturing a global custody product and the opportunities and challenges of distribution. It considers the approaches and decisions made in the past and considers some alternative strategies in the light of market developments and the economies of scale. By drawing a parallel with the tradition of correspondent banking, it suggests how banks can work with complementary partners to meet their clients’ requirements.