A correspondent account is an account (often called a nostro or vostro account) established by a

banking institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...

to receive deposits from, make payments on behalf of, or handle other financial transactions for another financial institution. Correspondent accounts are established through bilateral agreements between the two banks.

Application

Commonly, correspondent accounts are the accounts of foreign

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

s that require the ability to pay and receive the domestic

currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general ...

. A bank will typically require correspondent accounts for holding currencies outside of jurisdictions where it has a branch or affiliate. This is because most central bank settlement systems do not register deposits or transfer funds to banks not doing business in their countries. With few exceptions, the actual funds held in any foreign currency account (whether for a bank or for its customer) are held in the bank's correspondent account in that currency's home country. Even where a bank has branches or affiliates in multiple jurisdictions, balances in a foreign currency account in one jurisdiction are held with a correspondent account at either that bank's branch or affiliate in the foreign country, or at another institution. For example, HSBC receives

US dollars The United States dollar (symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official ...

at its affiliate,

HSBC Bank USA HSBC Bank USA, National Association, an American subsidiary of multinational company HSBC, is a bank with its operational head office in New York City and its nominal head office in McLean, Virginia (as designated on its charter). HSBC Bank USA ...

, while

DBS Bank DBS Bank Limited, often known as DBS, is a Singaporean multinational banking and financial services corporation headquartered at the Marina Bay Financial Centre in the Marina Bay district of Singapore. The bank was previously known as The De ...

Singapore receives US dollars at

JPMorgan Chase JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company headquartered in New York City and incorporated in Delaware. As of 2022, JPMorgan Chase is the largest bank in the United States, the ...

Example

A Dutch oil company is a customer of

ING Ing, ING or ing may refer to: Art and media * '' ...ing'', a 2003 Korean film * i.n.g, a Taiwanese girl group * The Ing, a race of dark creatures in the 2004 video game '' Metroid Prime 2: Echoes'' * "Ing", the first song on The Roches' 1992 ...

in Amsterdam, and sells a cargo of 500,000

barrels A barrel or cask is a hollow cylindrical container with a bulging center, longer than it is wide. They are traditionally made of wooden staves and bound by wooden or metal hoops. The word vat is often used for large containers for liquids, u ...

of oil for $40 million to a Swiss trading company who is a customer of Credit Suisse. ING Amsterdam holds its dollars at

Bank of America The Bank of America Corporation (often abbreviated BofA or BoA) is an American multinational investment bank and financial services holding company headquartered at the Bank of America Corporate Center in Charlotte, North Carolina. The bank ...

(BofA) and Credit Suisse holds its dollars at

The Bank of New York Mellon The Bank of New York Mellon Corporation, commonly known as BNY Mellon, is an American investment banking services holding company headquartered in New York City. BNY Mellon was formed from the merger of The Bank of New York and the Mellon Finan ...

(BNY). When the Swiss trader instructs its bank to pay the money, Credit Suisse debits the trader's account and transfers dollars from its correspondent account at BNY to ING's account at BofA. Then, ING credits the dollars to the oil company's dollar account in Amsterdam.

References

Title 31 of the United States Code Title 31 of the United States Code outlines the role of the money and finance in the United States Code. Legislative history The title was codified September 13, 1982 as "Money and Finance", , . Contents The latest contents, as of on May 1 ...

- Special measures for jurisdictions, financial institutions, international transactions, or types of accounts of primary money laundering concern * Title III, Section 311 (e)(1)(B), United States

Patriot Act The USA PATRIOT Act (commonly known as the Patriot Act) was a landmark Act of the United States Congress, signed into law by President George W. Bush. The formal name of the statute is the Uniting and Strengthening America by Providing Appro ...

* {{cite web , author1=European Central Bank , title=Glossary of terms related to payment, clearing and settlement systems , url=https://www.ecb.europa.eu/pub/pdf/other/glossaryrelatedtopaymentclearingandsettlementsystemsen.pdf Banking terms

Application

Example

See also

References