Two questions: First, a bank establishing a relationship with another bank is still required to do CIP with no exceptions. Correct?
Second: Did anyone ever hear of this requirement and if so why? For OFAC and CIP you must request a lists of people who own greater than 5% of privately held financial institutions.

well,

I guess that is to further know your customer ... benefical owner ...correct! Sort of to aviod falling into front companies as you need to conduct further due diligence on them as well when u identify them.

Best regards

First, no. From the CIP regulation:

(ii) Customer does not include:
(A) A financial institution regulated by a Federal functional regulator or a bank regulated by a state bank regulator;

Second, there is no "requirement" to this effect. Where did you get the impression that there is?

I think you might be referring to the due diligence procedures for opening correspondent accounts for foreign banks. Is the bank foreign?