Key Points Regarding Correspondent Banks

A correspondent bank serves as an intermediary between domestic and foreign banks for conducting business.

The SWIFT network connects over 11,000 financial institutions in 200 countries and territories.

For record-keeping purposes, banks refer to funds held for other banks as vostro and nostro accounts.

Definition and Examples of Correspondent Banks

Correspondent banks facilitate cross-border payments between domestic and foreign banks through formal agreements.

The SWIFT network, with 11,000 financial institutions, enables global business transactions.

For instance, a U.S. bank can wire funds to Italy through a correspondent bank in the SWIFT network.

How Correspondent Banks Operate

Correspondent banks act as intermediaries for banks without direct relationships, facilitating cross-border payments.

For instance, a U.S. pizza shop owner can wire funds to an Italian supplier through a correspondent bank with a pre-existing relationship.

Vostro vs. Nostro Accounts: Simplifying Cross-Border Transactions

Banks use vostro and nostro accounts to manage payments between institutions in different countries.

A bank in the U.S. holding funds for an Italian bank would record them in a vostro account, while the Italian bank would track the funds in a nostro account.

Correspondent Bank Fees

International wire transfer fees, ranging from $15 to $50, are paid to correspondent banks for their services.

Fees vary based on factors like the financial institution, transaction type, currency, and initiation method.

Some banks may charge additional fees on top of what is paid to the correspondent bank.