A correspondent bank is a bank that holds accounts for other banks and makes and receives payments on their behalf, most often for banks abroad that need access to its currency or its country's payment systems. The bank using the service is called the respondent. The arrangement exists because no bank can keep an account with every other bank: a small US bank is unlikely to hold rupees in Mumbai, so it relies on a larger bank that has accounts abroad, and those larger banks hold accounts with each other. The Bank for International Settlements describes the result as a network in which correspondents pay one another by sending messages that tell each other which accounts to debit and credit, so one transfer can need several such steps, known as a payment chain. The money transfer hub compares the ways of sending money abroad that run on this network with those that avoid it.
How does a correspondent bank move an international wire?
It moves money by debiting one bank's account and crediting another's on its own books, while payment messages tell each bank in the chain which entries to make.
Take a US dollar wire from a small US bank to a supplier's account at a bank in Kenya. The US bank holds no account with the Kenyan bank, so it hands the payment to its own correspondent, a large US bank. The Kenyan bank keeps its dollars at a different New York bank, so the first correspondent pays that bank, which credits the Kenyan bank's account; the Kenyan bank then credits the supplier. Each hop is a pair of book entries, and every bank between the sender's bank and the recipient's bank acts as an intermediary for that payment.
The instructions travel over Swift, a messaging cooperative that, as of November 2, 2026, connects more than 12,500 institutions in over 200 countries and territories. Swift holds no money and keeps no accounts; the funds sit in the banks' accounts with each other. Since November 22, 2025, Swift has required cross-border payment instructions to use the ISO 20022 format, whose messages include a block for recording which bank took which charge. Long chains are the exception rather than the rule: Swift says 86% of payments on its network travel directly or through a single intermediary.
Correspondents also serve banks at home. In the European Central Bank's 2019 survey of large euro correspondents, about a third of payment value, 36%, moved between a sender and a recipient both inside the euro area, mostly banks reaching the euro payment systems indirectly through their correspondent.
What are nostro and vostro accounts?
They are two names for the same account: the bank that owns the money calls it a nostro account, and the bank that holds it calls it a vostro account.
| Term | Meaning | Whose books | In the Kenya example |
|---|---|---|---|
| Nostro | Italian for ours: our money, held by you | The respondent that owns the money | The Kenyan bank's record of its dollars in New York |
| Vostro | Italian for yours: your money, held by us | The correspondent that keeps the account | The New York bank's record of what it owes the Kenyan bank |
| Loro | Theirs: an account a third bank holds with the correspondent | A bank with no account of its own there | A bank settling through another bank's New York account |
Because every entry on one side is mirrored on the other, the pair is sometimes called mirror accounts. A respondent has to keep enough money in each nostro to cover the payments it sends, which ties up cash in every currency it serves. Some correspondents ease that with intraday credit, letting the respondent overdraw during the day; in the ECB's 2019 survey, more than 40% of customer banks had access to it.
How do OUR, SHA and BEN decide who pays the correspondents?
The charge code on the wire decides it: OUR bills every fee to the sender, SHA has each side pay its own bank, and BEN charges everything to the recipient.
Under SHA and BEN, intermediaries take their fees out of the payment as it passes, so the amount shrinks at each hop. Under OUR, the sending bank charges the sender up front to cover them. ISO 20022 messages call the same three choices DEBT, SHAR and CRED. The guide to international wire transfer fees lists what banks charge at each end; for a wire sent with shared charges, the arithmetic is:
Worked example: A $2,500 invoice that lands $45 short
- A US business pays a Kenyan supplier's $2,500 invoice by dollar wire with SHA, through the chain described above. The fees are assumptions for illustration.
- The sending bank bills its customer a $40 fee separately and sends the full $2,500.
- Its correspondent deducts $15, so $2,485 moves on.
- The Kenyan bank's New York correspondent deducts $20 and credits $2,465 to the Kenyan bank's dollar account.
- The Kenyan bank charges its customer $10 for the incoming wire and credits $2,455, which is $45, or 1.8%, short of the invoice.
- Sent with OUR, the sender pays its bank an extra charge meant to cover the intermediaries, and the supplier receives $2,490: still $10 short, because the Kenyan bank charges its own customer for incoming wires either way.
- Had a consumer sent the money as a remittance, the provider's disclosure would have to count the $35 of intermediary deductions, while the $10 receiving fee would only need a warning that recipient bank fees may apply. If less arrived than the disclosure allowed for, the provider would have to make up the difference.
What rules apply to correspondent accounts in the US?
US banks must treat each account they keep for a foreign bank as a money laundering risk to manage, under rules that date from the USA PATRIOT Act of 2001.
- Due diligence for every foreign correspondent account. The bank weighs the foreign bank's business and markets, the account's purpose and expected activity, the anti-money-laundering rules of the country that licensed it and its own record, then reviews the account's activity against that profile.
- Enhanced due diligence for higher-risk banks. Accounts for banks with offshore licenses, or licensed by countries flagged as non-cooperative by an international body the US belongs to or picked out by the Treasury for special measures, need closer scrutiny: a review of the foreign bank's own controls, transaction monitoring, the identity of each owner of 10% or more if its shares are not publicly traded, and whether it offers correspondent accounts to other foreign banks.
- No shell banks. A US bank may not keep a correspondent account for a foreign bank with no physical presence in any country. It collects a certification from each foreign bank at least every three years, keeps records of its owners, where its shares aren't publicly traded, and of a US agent who can accept legal papers, and must close the accounts if a new foreign bank's certification hasn't arrived within 30 days.
- Sender details that travel with the money. On transfers of $3,000 or more, each intermediary must pass on the sender's name, address and account number it received, and US banks screen every party against sanctions lists. The entry on know your customer explains those checks.
Why are correspondent banking relationships declining?
Banks have been dropping relationships whose compliance costs and risks outweigh what they earn, a retreat often described as de-risking.
The BIS payments committee counts active correspondents from Swift message data. By its measure, their number fell about 30% worldwide between 2011 and 2022, the latest year it has published, with declines of 19% in North America and 47% in the rest of the Americas. Payment volumes kept growing over the same years, so fewer banks now carry more of the traffic. A respondent that loses its last dollar correspondent has to find another, often on worse terms, or route payments through a nested relationship, in which a bank uses its own correspondent account to offer correspondent services to other banks. The World Bank has warned that every nested layer makes it harder for the bank processing a payment to know who originated it.
How is a correspondent bank different from an intermediary or beneficiary bank?
A correspondent is defined by a standing account relationship, while intermediary, beneficiary and sending bank describe the role a bank plays in one payment.
| Term | What it is | In the Kenya example |
|---|---|---|
| Correspondent bank | Holds accounts for other banks and makes payments for them | Both New York banks |
| Respondent bank | Uses a correspondent's accounts and services | The small US bank and the Kenyan bank |
| Intermediary bank | Any bank between the sender's bank and the recipient's bank in a given payment | Both New York banks, for this wire |
| Beneficiary bank | Holds the recipient's account and credits the money | The Kenyan bank |
| Payable-through account | A correspondent account the foreign bank lets its own customers use directly | Not used here; draws enhanced scrutiny under US rules |
| Swift | The network that carries the payment instructions and holds no money | Carries each instruction in the chain |
Domestic payment systems avoid the chain altogether: a peso payment inside Mexico, addressed with an 18-digit CLABE, settles on SPEI, the system Banco de México runs, rather than passing along a chain of foreign correspondents. In an international chain, SWIFT codes identify each bank, and the guide to routing numbers and SWIFT codes explains which identifier a US wire needs.
What mistakes make wires arrive short or bounce?
Most problems trace back to instructions that leave the route or the charges to chance.
- Keeping SHA for an invoice that must be paid in full. Choose OUR or add enough to cover the deductions, and ask the recipient's bank how it treats OUR payments.
- Dropping the intermediary the recipient's bank named. When the instructions specify a dollar correspondent, leaving it out can send the payment a longer way or back to the sender.
- Assuming the amount sent is the amount received. Ask the recipient to confirm what arrived and ask the sending bank to trace any gap; how long international transfers take covers what a trace can show.
- Sending dollars to an account in another currency. The receiving bank or a correspondent converts at its own rate, a cost that never appears as a fee.
For payments coming the other way, the guide to receiving money from abroad lists the details to give a sender, and the money transfer cost calculator compares a wire's total cost with other ways to send.