What are correspondent and intermediary banks?

Correspondent banks and intermediary banks are both important facilitators of international financial transactions, but they have some differences:

Correspondent Banks

Correspondent banks are financial institutions that provide services to another bank, typically in a different country. They act as representatives or agents for the other bank, allowing it to conduct business in foreign markets without establishing a physical presence there.

• They typically handle transactions in multiple currencies
• They have established relationships and agreements with the banks they serve
• They offer a wide range of services including wire transfers, check clearing, and foreign exchange
• They use nostro and vostro accounts to track transactions between banks

Intermediary Banks

Intermediary banks act as middlemen between sending and receiving banks when there is no direct relationship between them. Their primary role is to facilitate the transfer of funds.

• They usually handle transactions in a single currency
• They may not have formal agreements with the banks involved in the transaction
• Their main function is to route funds from one bank to another
• They are often used when the sending and receiving banks don't have a direct relationship or when multiple "hops" are needed to complete a transaction