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| A '''correspondent account''' is an account (often called a ]) established by a ] to receive deposits from, make payments on behalf of, or handle other ]s for another financial institution. Correspondent accounts are established through bilateral agreements between the two banks. | {{Short description|Bank account used for inter-bank business}}A '''correspondent account''' is an account (often called a ]) established by a ] to receive deposits from, make payments on behalf of, or handle other ]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 ]s that require the ability to pay and receive the domestic ]. The accounts allow them to pay others from the account or receive money from others into the account. This allows the bank to offer various services to their customers such as ] and foreign currency denominated ]s and ]s, despite their not having a ] for the foreign country in that country's currency. | |||
| Commonly, correspondent accounts are the accounts of foreign ]s that require the ability to pay and receive the domestic ]. A bank will typically require correspondent accounts for holding currencies outside of jurisdictions where it has a branch or affiliate. This is because most ] 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, ] receives ] at its affiliate, ], while ] Singapore receives US dollars at ]. | |||
| Such accounts are necessary for ] that requires people and businesses to pay for things in a currency other than their own. It is impractical to transport large amounts of currency around the world and physically exchange domestic currency for the currency that a customer/supplier demands. Instead, money is taken out of an account at a local bank (which is in local currency) and an equivalent amount of money is put in the customer's or supplier's account at their local bank (in a foreign currency). The money from the buyer's account goes to an internal account of your bank. The money to the customer or supplier comes from an account the buyer's local bank holds with a bank in the supplier's country—the buyer's bank's correspondent account, at their '''correspondent bank'''.<ref>{{cite web |url=http://www.regulatorycompliance.com/newsletter/2010/April/anti_money_laundering.html |title=Anti-Money Laundering and Correspondent Accounts |date=April 2010 |publisher=Regulatory Compliance, LLC}}</ref> | |||
| ==Example== | ==Example== | ||
| A customer of |
A Dutch oil company is a customer of ] in Amsterdam, and sells a cargo of 500,000 ] of oil for $40 million to a Swiss trading company who is a customer of ]. ING Amsterdam holds its dollars at ] (BofA) and Credit Suisse holds its dollars at ] (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. | ||
| The customer receives its machinery and the supplier has its money (in euros). Wells Fargo's account is balanced, having fewer euros and a correspondingly greater amount of U.S. dollars. | |||
| ==See also== | ==See also== | ||
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| *] | *] | ||
| *] | *] | ||
| *] | |||
| ==References== | ==References== | ||
| {{reflist}} | {{reflist}} | ||
| == |
==Sources== | ||
| * ] (e)(1)(B), ] | * {{usc-clause|31|5318A|(e)(1)(B)}}{{snd}}] - Special measures for jurisdictions, financial institutions, international transactions, or types of accounts of primary money laundering concern | ||
| * ] (e)(1)(B), United States ] | |||
| * {{usc-clause|31|5318A|(e)(1)(B)}} | |||
| * {{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}} | |||
| ] | ] | ||
| {{Finance-stub}} | |||
Latest revision as of 08:48, 2 January 2025
Bank account used for inter-bank businessA correspondent account is an account (often called a nostro or vostro account) established by a banking institution 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 banks that require the ability to pay and receive the domestic currency. 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 at its affiliate, HSBC Bank USA, while DBS Bank Singapore receives US dollars at JPMorgan Chase.
Example
A Dutch oil company is a customer of ING in Amsterdam, and sells a cargo of 500,000 barrels 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 (BofA) and Credit Suisse holds its dollars at The Bank of New York Mellon (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.
See also
References
Sources
- 31 U.S.C. § 5318A(e)(1)(B) – 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
- European Central Bank (24 September 2024). "Glossary of terms related to payment, clearing and settlement systems" (PDF).