Global trade, remittances, portfolio and direct investment flows, and even humanitarian financial flows across countries are fundamentally dependent on correspondent banking services. Today, more than ever, our financial system is inextricably linked with those of other countries. As with any other products offered by banks, the provision of correspondent banking services entails certain risks. These risks stem predominantly from AML/CFT.
Raising the rate of interest paid on reserve balances will give us substantial leverage over the federal funds rate and other short-term market interest rates, because banks generally will not supply funds to the market at an interest rate significantly lower than they can earn risk free by holding balances at the Federal Reserve.