Syndicated lending helps banks spread their risks
In the United States, for example, banks located in major money centres such as New York City and Chicago are invariably characterised by an excess demand for funds relative to the inflow from local deposits. On the other hand small banks located in rural and semi-urban areas in states such as Alabama and Georgia are usually unable to lend their deposits fully to local borrowers since such states are characterised by relatively low industrial and business activities. Consequently, banks in smaller towns and cities, which invariably have surplus funds, maintain accounts in large metropolises such as New York City and Chicago, help in capital flows from surplus regions of the country to regions characterised by deficits.
Correspondent banking also plays a role in international banking. Take an Indian bank such as ICICI Bank. It will have a correspondent banking relationship with banks in global commercial centres such as London, New York and Tokyo. Let us assume that ICICI Bank has such an account with Barclays Bank in London. Any cheque denominated in
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