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

banking institution A financial institution, sometimes called a banking institution, is a business entity that provides service as an intermediary for different types of financial monetary transactions. Broadly speaking, there are three major types of financial ins ...

to receive deposits from, make payments on behalf of, or handle other

financial transaction A financial transaction is an Contract, agreement, or communication, between a buyer and seller to exchange goods, Service (economics), services, or assets for payment. Any transaction involves a change in the status of the finances of two or mo ...

s 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 Deposit account, 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 m ...

s that require the ability to pay and receive the domestic

currency A currency 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 definition is that a currency is a ''system of money'' in common use within a specific envi ...

. 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 HSBC Holdings plc ( zh, t_hk=滙豐; initialism from its founding member The Hongkong and Shanghai Banking Corporation) is a British universal bank and financial services group headquartered in London, England, with historical and business li ...

receives

US dollars The United States dollar (symbol: $; currency code: USD) is the official currency of the United States and several other countries. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it int ...

at its affiliate,

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

, while

DBS Bank DBS Bank Limited 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 Development Bank of Si ...

Singapore receives US dollars at

JPMorgan Chase JPMorgan Chase & Co. (stylized as JPMorganChase) is an American multinational financial services, finance corporation headquartered in New York City and incorporated in Delaware. It is List of largest banks in the United States, the largest ba ...

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' 199 ...

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 ...

of oil for $40 million to a Swiss trading company who is a customer of

Credit Suisse Credit Suisse Group AG (, ) was a global Investment banking, investment bank and financial services firm founded and based in Switzerland. According to UBS, eventually Credit Suisse was to be fully integrated into UBS. While the integration ...

. ING Amsterdam holds its dollars at

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

(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, is an American international financial services company headquartered in New York City. It was established in its current form in July 2007 by the merger of the Bank of New York an ...

(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

Sources

* Title 31 of the United States Code - 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 * {{cite web , author1=European Central Bank , title=Glossary of terms related to payment, clearing and settlement systems , date=24 September 2024 , url=https://www.ecb.europa.eu/pub/pdf/other/glossaryrelatedtopaymentclearingandsettlementsystemsen.pdf Banking terms

Application

Example

See also

References

Sources