Undiscussed up till some days ago, the correspondent bank crisis is now the talk of the town.

The contemporaneous visit to New York by the prime minister, the finance minister, the MFSA chairman, and the Central Bank deputy governor raised public alarm, especially when this was broadcast in an alarmistic way.

The government had issued a small press release, which we carried, about a meeting with businessmen in New York but then people tend to believe the worst in most cases.

The Opposition issued its own statement yesterday to which the government replied with its own statement, touching, for the first time, on the correspondent bank crisis.

What is this crisis?

In short, it is that banks in Malta have been finding it difficult to keep correspondent banks in the US. Some people in Malta, including the PN spokesperson, ascribed this to reputational problems, in view of the Panama Papers issue and related subjects.

But when Prime Minister Muscat announced his coming trip when he was speaking at the launch of the Malta Stock Exchange’s strategic plan for capital markets he announced he would be meeting representatives of top banks to ensure that the services now in force are not withdrawn.

The alternative explanation to what is happening is that correspondent banks have been scaling back their services in an attempt to cut down on the huge compliance costs and risks resulting from their dealings with banks in other jurisdictions. In recent years it has been found easier to sever relations than to manage the risk of being inadvertently embroiled in money laundering or terrorist financing.

This issue has been on the table for a number of years (the government statement goes back to PN times too) but it has recently become stronger and, as the prime minister said, it is critical for the future of our economy.

Bank of Valletta used to have a whole network of international correspondent banks, one of which is Deutsche Bank and its heads say they are not unduly worried but at the same time it says it is trying to diversify its international sources and in fact it has recently made contact with a number of banks who are interested in establishing a correspondent relationship.

This is an area where banking and international politics meet (or cross each other). There are risks, but there are also opportunities.

A recent article on the Wall Street Journal said: “With major U.K. and U.S. banks still struggling to find reassurances from regulators to resume business with Iran nearly 10 months since “implementation day, a handful of European banks are forging ahead and sealing transactions with the oil-rich nation.

“I’ve recently found a new sport, which is hunting for small banks who want to do business with Iran,” said Andreas Schweitzer, senior managing partner at Arjan Capital Ltd., a Malta-registered investment and advisory firm that focuses on doing business with Iran. “And we won’t waste our resources looking for large banks; we will do business with medium sized banks–in Italy, Liechtenstein,” he said last week at the Iranian Trade Conference in London.