Bahraini authorities will discuss with the US Treasury the problem of international banks becoming reluctant to deal with banks in Bahrain and the Gulf because of tight US regulation, Bahrain's central bank governor said on Tuesday.

"Many international banks have curtailed their correspondent services with regional and local banks. Some of the banks have refrained from dealing with exchange houses," Rasheed Mohammed Al-Maraj told a business conference.

"This has affected a wide sector of the population, especially the expatriates."

Al-Maraj said officials in Bahrain, one of the Gulf's financial centres, had met US Treasury officials last November and planned another meeting on the issue in April.

US regulations, part of a tougher regime introduced since the financial crisis, include scrutiny of potential tax avoidance and anti-money laundering rules.

These have imposed extra costs on US banks, prompting many to reduce the number of foreign institutions with which they do business, and making international banks operating in the US more wary of ties with the Gulf.

UAE central bank governor Mubarak Rashid Al-Mansouri complained of the problem in December, saying it had become harder for UAE banks to obtain dollar clearance services - the processing of transactions in the US currency.

Al Maraj said Bahrain was engaging with US authorities including the Federal Reserve and the Office of the Comptroller of the Currency, as well as with international banks, to convince them that the compliance standards of Bahraini and Gulf banks were in line with global practices.

"We are hoping they will give us some flexibility ..." he said. "This is a serious issue for us."  - Reuters