Vostro Account
What Is a Vostro Account?
A vostro account is an account a correspondent bank hangs for the benefit of another bank. These accounts are an essential part of correspondent banking wherein the bank holding the funds acts as custodian for or deals with the account of a foreign counterpart. For instance, if a Spanish life insurance company moves toward a U.S. bank to oversee funds on the Spanish life back up plan's sake, the account is considered by the holding bank as a vostro account of the insurance company.
Figuring out Vostro Accounts
A vostro account is laid out to empower a foreign correspondent bank to act as an agent or offer types of assistance as an intermediary for a domestic bank. These services incorporate executing wire transfers, withdrawals, and deposits for customers in countries where the domestic bank doesn't have a physical presence.
The foreign correspondent bank could likewise perform treasury services, execute foreign exchange transactions, and speed up international trade for the benefit of the domestic bank. The correspondent bank charges the domestic bank for the services associated with the vostro account.
Small domestic banks that lack financial and human resources now and again utilize the services of bigger correspondent banks in foreign countries as an economic method for serving clients with global banking needs.
Vostro Account versus Nostro Account
The term vostro, deciphered from Latin, means "your," as in your account. From the foreign correspondent bank's point of view, the funds held for different banks are alluded to as vostro accounts and are named in the neighborhood currency.
According to the point of view of domestic banks, the funds deposited at correspondent banks are alluded to as nostro accounts. Nostro, deciphered from Latin, means "our," as in our accounts. Nostro accounts are named in the foreign currency of the correspondent bank.
Vostro Accounts in an Agency Relationship
For most banks, the cost of building physical branches in each country their customers could require banking services is restrictive. As a solution, domestic banks can start agency relationship agreements with correspondent banks to transact business for customers who are voyaging, living abroad, or who own companies that carry on with work abroad. As an agent of the domestic bank, the correspondent bank is authorized to perform certain settled upon financial transactions, acting as a fiduciary in the relationship.
Vostro Accounts in an Intermediary Relationship
At the point when funds are wired between a domestic and a foreign bank that don't have a direct relationship, a correspondent bank acts as the financial intermediary in the transaction. To work with the wire, the originator of the transfer sends the amount of the wire plus applicable fees to the vostro account held for its benefit by the correspondent bank. The correspondent bank deducts the fees and the amount of the wire from the vostro account and executes a domestic wire to the getting bank.
Illustration of a Vostro Account
With a vostro account relationship in place, the customer of a domestic bank can walk into the office of a correspondent bank to pull out or deposit funds. For instance, to handle a customer's withdrawal of funds at a correspondent bank, the domestic bank deducts the withdrawal amount plus any fees from the customer's account and executes a transfer to the vostro account held by the correspondent bank. The funds are switched over completely to the nearby currency, deducted from the vostro account, and paid to the domestic bank's customer, minus the applicable fees.
Features
- Vostro accounts empower domestic banks to give international banking services to their clients who have global banking needs.
- Vostro is a Latin word that means "your," as in "your account."
- Vostro account services incorporate executing wire transfers, performing foreign exchange transactions, empowering deposits and withdrawals, and assisting international trade.
- A vostro account is an essential part of correspondent banking where a foreign bank acts as an agent offering financial types of assistance in the interest of a domestic bank.
