Global Financial Security Threatened by Debanking, Warns Think-Tank

A new report warns that the rapid pace of “debanking” — the withdrawal of banking services from certain countries and sectors — is undermining global financial security. According to the Royal United Services Institute (RUSI), this trend forces smaller economies to explore alternatives to dollar-based systems, reducing Western influence and increasing geopolitical risks for investors, banks, and governments alike.

What Is Debanking and Why It Matters

Debanking, often linked to “de-risking,” occurs when large banks cut ties with regions or sectors they view as high-risk due to sanctions, compliance pressures, or heightened regulatory scrutiny. Correspondent banks, which provide international services such as deposits, credit transfers, and checking account settlements, have been retreating from smaller economies — particularly in the Pacific and Caribbean.

For affected countries, this withdrawal disrupts remittances, foreign investment, and access to basic credit and loans. Without reliable banking infrastructure, these nations are increasingly turning to alternatives such as cryptocurrencies, regional banking networks, and Chinese-led payment systems.

Impact on Businesses and Customers

For businesses, debanking creates costly inefficiencies. Small firms that once relied on international digital banking services must now navigate slower, less secure alternatives. The loss of direct dollar access also affects interest rates and credit availability, making mortgages, deposits, and business loans harder to secure.

For ordinary customers, the impact is equally stark. Interrupted payment flows reduce the reliability of remittances — a vital lifeline in many developing economies. At the same time, the move toward informal or unregulated payment systems raises risks around fraud, money laundering, and cybercrime.

Challenges for Banks and Regulators

Western banks are caught in a bind: regulatory obligations push them to de-risk, but pulling out diminishes their role in global financial oversight. The RUSI report warns that when jurisdictions lose access to traditional banking, Western institutions lose both influence and transparency over international money flows.

Some governments are experimenting with solutions. Australia’s Pacific Banking Guarantee Bill, for example, seeks to reassure banks by offering state-backed security for continued operations in vulnerable regions. Such measures aim to ensure that credit, deposits, and checking account services remain available without exposing banks to excessive compliance costs.

Looking Ahead: A Splintering System

While alternatives like Russia’s payment system and China’s Cross-Border Interbank Payment System remain small compared with Western platforms such as SWIFT, they signal a slow diversification away from dollar dominance. Stablecoins such as Tether and USDC, ironically, continue to drive demand for U.S. dollar assets, effectively “re-dollarising” parts of the system.

Closing Insight: The rise of debanking illustrates the tension between financial security and regulatory risk management. If left unchecked, it could accelerate the splintering of the global financial system, eroding trust in established channels. To preserve both stability and influence, Western banks and policymakers must strike a balance: safeguarding against risk while ensuring inclusive access to credit, deposits, and digital banking. For investors and SMEs, understanding this trend is critical — as tomorrow’s financial landscape may look far more fragmented than today’s.

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