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Fixing broken anchor: 2019-05-02 (VERY DIFFERENT 12≥8) #National→Payment system#Domestic
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A '''correspondent account''' is an account (often called a [[nostro and vostro accounts|nostro or vostro account]]) established by a [[banking institution]] to receive deposits from, make payments on behalf of, or handle other [[financial transaction]]s for |
{{Short description|Bank account used for inter-bank business}}A '''correspondent account''' is an account (often called a [[nostro and vostro accounts|nostro or vostro account]]) established by a [[banking institution]] to receive deposits from, make payments on behalf of, or handle other [[financial transaction]]s for another financial institution. Correspondent accounts are established through bilateral agreements between the two banks. |
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==Application== |
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Commonly, correspondent accounts are the accounts of foreign banks who require the ability to pay and receive the domestic currency. 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 involving such as foreign exchange and foreign currency denominated loans and deposits, despite them not having a bank licence for the foreign country in that country's currency. |
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Commonly, correspondent accounts are the accounts of foreign [[bank]]s 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 [[Payment system#Domestic|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. |
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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 [[United States dollar|US dollars]] at its affiliate, [[HSBC Bank USA]], while [[DBS Bank]] Singapore receives US dollars at [[JPMorgan Chase]]. |
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Such accounts are necessary for international trade which demands people and business 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 your own currency for the currency that your customer/supplier demands. Instead money is taken out of your account at your local bank (which is in your local currency) and an equivalent amount of money is put in your customer/suppliers account at their local bank (in a foreign currency). The money from your account goes to an internal account of your bank. The money to your customer/supplier comes from an account your local bank holds with a bank in your supplier's country - your bank's '''correspondent account''', at their '''correspondent bank'''. |
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==Example== |
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For example, a customer of Wells Fargo Bank may wish to pay a German firm EUR1,000,000 for machinery. Wells Fargo determine's that this is equivalent to USD1,200,000. Wells Fargo takes the $1,200,000 out of the customers bank account, and instruct their German correspondent bank -- perhaps Deutche Bank -- to take EUR1,000,000 out of Wells Fargo's correspondent account with Deutche Bank, and pay the money into the German company's EUR. |
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A Dutch oil company is a customer of [[ING Group|ING]] in Amsterdam, and sells a cargo of 500,000 [[Barrel (unit)#Oil barrel|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. |
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So, the customer has their machinery. The supplier have their money (in EUR) . Wells Fargo is square by having fewer EUR, correspondingly greater amount of USD. |
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It is established through bilateral agreements between two counterparts (in this case two financial organisations) to support the multi lateral economic balances established throughout the globe. <Arifeen, HSBC Bangladesh> |
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==See also== |
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*[[Hawala]] |
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*[[Hundi]] |
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*[[Informal value transfer system]] |
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*[[Nostro and vostro accounts]] |
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==References== |
==References== |
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{{reflist}} |
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*[[s:USA PATRIOT Act/Title III#Sec. 311. Special measures for jurisdictions, financial institutions, or international transactions of primary money laundering concern.|Title III, Section 311]] (e)(1)(B), [[ |
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* {{usc-clause|31|5318A|(e)(1)(B)}} |
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<references/> |
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==Sources== |
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* {{usc-clause|31|5318A|(e)(1)(B)}}{{snd}}[[Title 31 of the United States Code]] - Special measures for jurisdictions, financial institutions, international transactions, or types of accounts of primary money laundering concern |
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| ⚫ | * [[s:USA PATRIOT Act/Title III#Sec. 311. Special measures for jurisdictions, financial institutions, or international transactions of primary money laundering concern.|Title III, Section 311]] (e)(1)(B), United States [[Patriot Act]] |
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* {{cite web |author1=European Central Bank |title=Glossary of terms related to payment, clearing and settlement systems |url=https://www.ecb.europa.eu/pub/pdf/other/glossaryrelatedtopaymentclearingandsettlementsystemsen.pdf}} |
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[[Category:Banking terms]] |
[[Category:Banking terms]] |
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{{Finance-stub}} |
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Acorrespondent 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.
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.
