Correspondent Banking

Correspondent banking is an arrangement in which one bank, the correspondent, holds deposits for another bank, the respondent, and makes or receives payments on its behalf, usually across borders and currencies.

How it works

A bank in Kenya cannot open an account at the Federal Reserve, so to pay dollars it keeps a dollar account at a US bank that can. That account is the respondent's nostro account, and the same account seen from the US bank's side is a vostro account. When a Kenyan company pays a US supplier, the Kenyan bank instructs its correspondent, usually by a SWIFT message, to debit its account and credit the supplier's bank. If the two banks have no direct relationship, the payment passes through one or more intermediary correspondents, each holding an account at the next.

Every hop adds a fee, a compliance check and a possible delay. A single payment can take one to several business days, and the sender may not know the total cost until it arrives. Global banks such as JPMorgan and Citi act as correspondents for hundreds of smaller banks.

Why it matters

Correspondent banking is how most cross-border money moves, and its costs fall on every bank that has to prefund accounts abroad. The Bank for International Settlements has documented a long decline in correspondent relationships as large banks cut smaller respondents to limit compliance risk, a trend known as de-risking. Stablecoins can replace part of this chain, mainly the prefunded interbank leg: a payment firm can move dollars between its own wallets in minutes instead of holding balances at correspondents. They do not remove the rest. Someone still converts local currency in and out, runs sanctions and anti-money-laundering checks, and pays out to a local bank account or mobile wallet, often over local banking rails. In practice, stablecoin corridors usually run between licensed payment companies at each end rather than replacing banks outright. For how large that shift is so far, see stablecoins' share of cross-border payments.

Related terms

• Nostro account
• Vostro account
• SWIFT
• De-risking
• Cross-border payments

Frequently asked questions

What is the difference between a correspondent and a respondent bank?

The correspondent provides the account and payment services. The respondent is the bank that uses them to reach a currency or market it cannot access directly.

Why do correspondent payments take days?

A payment may pass through several banks, each running compliance checks and posting entries in its own systems and business hours.

Do stablecoins replace correspondent banking?

They can replace the prefunded interbank leg in some corridors. Currency conversion, compliance checks and local payout still need licensed firms and local rails.

Read the research behind this. Start with the FXC Intelligence and Allium report on stablecoins in cross-border payments, then see how Allium measures organic payment volume.

Allium provides onchain data infrastructure. Companies named in this article may be Allium customers, prospects or commercial counterparties. The authors and other Allium personnel may hold positions in the assets discussed. This article is informational only and is not investment, legal or tax advice. Data and information last reviewed: November 4, 2026.