Correspondent Bank

What is a correspondent bank?

Correspondent banks are financial institutions that act as an agent for the benefit of other financial institutions, generally foreign banks. Correspondent banks might perform Treasury services, oversee foreign exchange, oversee international investments and work with international trade and finance for the benefit of the foreign bank. The correspondent bank charges the foreign bank for these services.

More profound definition

Foreign banks utilize the services of correspondent banks when laying out a branch in the country is not financially practical. This permits foreign banks to hold customers while keeping costs down.
The accounts that correspondent banks serve in the interest of foreign banks are alluded to by the correspondent banks as vostro, signifying, "your account on our books." a similar account is alluded to as nostro, by the foreign bank, signifying, "our account on your books."
At the point when international wire transfers happen between banks that don't have agreements laid out, a correspondent bank must be utilized as an intermediary. Since numerous worldwide banks don't have laid out arrangements with each other, most wire transfers are directed through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network.
The beginning bank scans the SWIFT network for a correspondent bank that has agreements with the two banks. Then, the starting bank sends the transferred funds to the account held at the correspondent bank. Subsequent to gathering its transfer fee, the correspondent bank sends the money to the getting bank. The correspondent bank ordinarily charges $25 to $75 for the service.

Correspondent bank model

Jeff has a heating and air molding company. He needs to purchase parts from a provider in Mexico. Jeff goes to his nearby credit union to make the wire transfer to the provider's bank. Since the credit union doesn't have an agreement with provider's bank, the banker at the credit union purposes the SWIFT network to find a correspondent bank that both the credit union and the bank in Mexico have agreements with. The credit union transfers the money, including the $50 fee, from Jeff's account to the correspondent bank. The correspondent bank pulls out their fee and advances the money on to the provider's bank.
Do you live abroad? Learn about bank accounts for Americans living abroad.

Features

• Domestic banks can serve their international clients and gain access to foreign financial markets by utilizing correspondent banks as opposed to setting up branches overseas.
• Correspondent bank services might incorporate funds transfer, settlement, check clearing, and wire transfers.
• The accounts held between correspondent banks and the banks to which they are offering types of assistance are alluded to as nostro and vostro accounts.
• A correspondent bank is an authorized financial institution that offers types of assistance for another financial institution.