Bank Declines: What They Actually Mean and What to Do Next

Trustees and corporate service providers know the letter well. The bank thanks you for the application and confirms that, after careful review, it is unable to proceed. No reason is given. None will be, however politely you ask.

Our clients are rarely surprised by this anymore. They are frustrated. They know a fresh application means months of work with no guarantee, and the structure cannot wait. Without an account it cannot complete on a transaction, distribute to beneficiaries or even pay its own fees. So the question we hear is not "what went wrong" but "what now, and how fast".

Increasingly, the answer Trustees reach for is an electronic money institution. An EMI can onboard in days. We understand the temptation. We also think it is the wrong trade, and we explain why below.

Why Does This Happen?

Over the past decade, banks have systematically narrowed their appetite. Regulatory capital treatment, the cost of enhanced due diligence, fines for control failures elsewhere in the group, and risk committees that now set policy centrally rather than branch by branch. Each bank holds a precise and frequently updated definition of what it will and will not onboard.

A decline is the output of that policy. It tells you that this structure, presented this way, sits outside this bank's appetite this quarter. It tells you very little about whether the structure is bankable elsewhere. We regularly see the same structure declined by one institution and welcomed by another in the same jurisdiction in the same month.

Three Things a Decline Does Not Mean

The structure is defective. Most declined structures are entirely orthodox. A holding company with shareholders in two or three countries. A trust with a settlor from a market the bank has recently exited. A fund vehicle whose administrator sits offshore. Routine arrangements that happen to cross a line in a policy document the applicant never sees.

The next bank will say the same. Appetite varies more between banks now than at any point in twenty years. Some institutions have built genuine capability in fiduciary and fund structures and want more of that business. Others have withdrawn entirely. The market has fragmented far more than it has shrunk.

The application was well presented and still failed. In our experience the presentation is often the problem. A file built to the applicant's own standard, rather than to the receiving bank's standard, invites questions. Questions go to a risk committee. Risk committees decline.

The Part Nobody Mentions: Commercial Value

There is a second dimension to every decline. Banking a structure has to make commercial sense for the bank. Onboarding a complex entity costs the bank real money, and periodic reviews, monitoring and relationship management cost more every year the account stays open. If the relationship does not pay for that through balances, transaction flow, foreign exchange, credit or fees, the bank has little reason to take it on however clean the file is.

In our view, many declines that look like risk decisions are commercial decisions. The structure was bankable. The relationship was simply not worth enough to that institution. Banks rarely say so, because appetite is an easier letter to write than profitability.

This cuts both ways. A single dormant holding company is a cost to almost any bank. The same company, presented as part of a wider relationship, with expected balances, regular flows, multi currency activity and further entities behind it, reads as a client. And banks differ on what a worthwhile relationship looks like. A structure too small to interest one institution is core business for another.

The EMI Shortcut

An EMI opens quickly because it is not a bank. Client money sits in a safeguarded pool at a payment institution. There is no deposit protection, no lending relationship and no banking licence behind the account. Counterparties know the difference. So do the banks the structure will eventually need for anything beyond payments.

EMIs also de-risk, and in our experience they do it faster and more abruptly than banks. The Aregentex collapse showed how quickly access to funds can be suspended when a payment institution fails. A structure exited by a bank and then exited by an EMI is back where it started, with a longer history to explain. For a structure holding real value, an EMI is a stopgap at best and a second problem at worst.

What to Do Next

• Start with appetite. Establish which banks currently want this type of structure before approaching anyone. Appetite shifts quarter by quarter, and a list drawn up a year ago is already out of date. The single largest cause of repeated declines is reapplying to banks whose policy already excludes the structure, with an ever thicker file.
• Build the file to the receiving bank's standard, and state the commercial case alongside it. Expected balances, flows, currencies and the wider relationship belong in the application, because the bank is pricing the relationship as well as assessing the risk.
• Treat the first decline as data. It identifies the question the structure raises. Answer that question prominently in the next application, to a bank whose appetite accommodates it, and the dynamic reverses.

A decline letter, read properly, is not a verdict. It is one data point about one institution's policy at one moment. Somewhere in the market there is usually a licensed bank with current appetite for the structure, at a relationship size that works for both sides. We have set out how we approach this on our banking after a decline page.

If a bank has declined or exited a structure you administer, we can assist.