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A 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.

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

An oil company is a customer of ING in Amsterdam, and sells a cargo of 500,000 barrels of oil for $40 million to a trading company who is a customer of Credit Suisse. ING Amsterdam holds its dollars at Bank of America and Credit Suisse holds its dollars at BONY. When the Swiss trader instructs its bank to pay the money, Credit Suisse debts the trader's account and transfers dollars from its account at BONY to ING's account at BofA. Then, ING credits the dollars to the oil company's dollar account in Amsterdam.

See also

• Hawala
• Hundi
• Informal value transfer system

References

External links

• Title III, Section 311 (e)(1)(B), USA PATRIOT Act
• 31 U.S.C. § 5318A(e)(1)(B)

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