Correspondent Banking

Presented by:-Raj Kishore Goswami FMS, BHU, Varanasi Roll no.-12

Table of Contents International Banking Reasons for growth of International

banking Types of International banking Correspondent Banking Nostro & Vostro Accounts SWIFT, CHIPS, CHAPS, FEDWIRE

International Banking International banking is the cross-

border extension of a bank’s services.

Reasons for growth of International Banking Growth Diversification Lower marginal Cost Knowledge advantage Regulatory advantage Prestige Wholesale Strategy Retail strategy

Types of International banking Correspondent banks Representative offices Foreign branches Subsidiary and affiliate banks

Correspondent Banking Relationship A correspondent banking relationship is

established through a bilateral contract with a foreign bank to co-operate in such banking services as money transfer, foreign exchange and trade finance. Banks use correspondent banking relationship to deliver services to customers in markets where the bank has no physical presence. A correspondent bank provides services to a respondent bank. Both banks maintain correspondent balances in each other’s interbank account.

Nostro & Vostro Accounts A Nostro Account is an account denominated in a

foreign currency established through your local bank at a bank in the respective country of the currency desired. A nostro account is our account in a different country and a vostro account is a foreigner's account in our country.

For example, if you live in the United States and ask you local bank to set up a Rupee account for you, they will most likely open a "Nostro Account" with a correspondent agent bank in India that they have a banking relationship with for that specific purpose.

SWIFT Society for Worldwide Inter-bank Financial

Telecommunications was founded by 239 banks of 15 countries in 1973.

Swift is wholly owned by its member banks. Swift is basically a message transmission system. All the transactions are processed without the exchange of paper , bank note, cheque, draft, etc. and as such it is a true epitome of of paperless banking.

Main features of SWIFT It is operational throughout the year 24 hours a

day. Immediate transmission of message to any part of

the world. Swift assumes the financial liability for the

accuracy and timely delivery of all the validated messages.

All messages are acknowledeged. All message formats are standardised. Method of transsmssion of message is cost-

effective.

CHIPS World’s premier system for transfer of

payments internationally. It started operation in 1970. Run by a New York clearing House. Settlement failure in the history of CHIPS

operation have never been reported. It has dual Computers system with a

dual link channel.

CHAPS & CHATS The CHAPS set-up in the UK provides

almost instantaneous services for settlements of payments and the payments are guaranteed on receipt and cannot be recalled.

CHATS provide the inter-bank funds transfer facilities in Hong Kong, which has longbeen regarded as the hub of financial activities the world over.

Fedwire & Bankwire The Federal Reserve wire System, in

operation since 1956, is used by the member banks for EFT and is the main funds transfer system in the USA.

Bankwire is the pioneer private sector electronic telecommunication network, owned by an association of banks in the USA and used to transfer messages between the subscribing banks.