Question

Explain: Correspondent bank

Answer 1

Correspondent bank often refers to a bank that provides services on behalf of another financial institution.The financial institution on behalf of which the bank is providing services maybe equal or unequal in scale compared to the correspondent bank.Correspondent banks offer a wide variety of services such as accepting deposits,procuring documents on behalf of another bank ,facilitating wire transfers and so on.

Its often domestic banks that avail the services of correspondent banks because of their limited access to foreign financial markets.The accounts held by correspondent banks and the banks to which they provide services are termed Nostro and Vostro accounts.The correspondent bank calls the account it holds on behalf of another bank as Nostro account and the bank on whose behalf the correspondent bank is holding the account calls it Vostro account.

The biggest advantage that the domestic banks derive from correspondent banking is that they are able to deliver the services to their clients abroad without having to setup a physical presence in that particular nation.