Correspondent
banking is an arrangement under which one bank (correspondent) holds deposits
owned by other banks (respondents) and provides payment and other services to
those respondent banks. Such arrangements may also be known as agency
relationships in some domestic contexts.
In international banking, balances held
for a foreign respondent bank may be used to settle foreign exchange
transactions. Reciprocal correspondent banking relationships may involve the
use of so-called nostro and vostro accounts to settle foreign exchange
transactions.
