Correspondent banking, explained

Your cross-border payment doesn't fly straight to the other bank. It hops through accounts banks hold for each other.

What is correspondent banking?

One bank (the correspondent) holds an account for another bank (the respondent) and makes and receives payments for it. Under US anti-money laundering rules, a correspondent account is an account for a foreign financial institution to receive deposits, make payments, or handle other financial transactions (31 CFR 1010.605). Foreign financial institution includes foreign banks and certain foreign money transmitters and currency dealers.

What are nostro and vostro accounts?

Same account, two viewpoints. The bank that owns the account calls it nostro ("ours"). The bank providing it calls it loro or vostro ("yours") (ECB, Tenth survey on correspondent banking in euro).

What due diligence does US law require?

US banks must run a risk-based due diligence program for correspondent accounts held for foreign financial institutions (31 CFR 1010.610). It weighs:

• The foreign institution's business and the markets it serves
• The type, purpose and expected activity of the account
• Its anti-money laundering regime and record
• The jurisdiction it's licensed in

Enhanced due diligence applies to foreign banks with offshore licenses or in jurisdictions flagged by the US. It includes ownership and nested account checks. If the bank can't complete due diligence, the rule expects it to consider refusing, suspending or closing the account and filing a suspicious activity report.

The FFIEC exam manual says this implements section 312 of the USA PATRIOT Act. It also says there's no general requirement to diligence the foreign bank's own customers (FFIEC).

What is a nested correspondent account?

A foreign bank uses its US correspondent account to give other foreign banks access. US banks have to assess that, because the payment can belong to an institution they never onboarded.

Why do cross-border payments get held or returned?

Every bank in the chain screens the payment. Missing beneficiary details, a purpose that doesn't match the account's expected activity, or a high-risk corridor can trigger questions. Each bank can refuse a payment it can't explain.

How do you keep cross-border payments moving?

1. Give complete names, addresses and payment purpose on every wire.
2. Tell your bank which countries and counterparties to expect.
3. Answer requests for information fast, with documents.
4. Keep the business story the same across every bank you use.

How Break Free Finance helps

We're not a bank, processor, or money transmitter. We structure the deal, build the file a bank can underwrite, and place it with institutions in our network: decades of relationships with 40+ financial institutions and solution providers. The institution makes the decision, and approval is never guaranteed. Talk to us.

Sources (last checked October 11, 2026)

• 31 CFR 1010.605, definitions incl. correspondent account (Cornell LII)
• 31 CFR 1010.610, due diligence for correspondent accounts (Cornell LII)
• FFIEC BSA/AML Examination Manual, Due Diligence Programs for Correspondent Accounts for Foreign Financial Institutions
• European Central Bank, Tenth survey on correspondent banking in euro (Feb 2017)

General information, not legal or compliance advice.