Respondent Bank
A respondent bank is the bank that receives services in a correspondent banking relationship. It holds an account with a larger correspondent bank and uses it to make and receive payments in a currency or market it cannot reach on its own.
Also called: respondent · respondent institution · respondent banks
The terms describe roles in one relationship. The correspondent provides the account and access to a payment system; the respondent is its customer. A bank in Nairobi that keeps a dollar account with a New York bank is the respondent, and the New York bank is its correspondent. From the respondent's side that account is its nostro.
The respondent carries most of the burden of keeping the relationship. The correspondent is expected to assess the respondent's ownership, licence, customer base and anti-money-laundering controls, and will ask detailed questions about the types of customer whose payments flow through the account. Respondents that serve money transfer businesses, payment firms or other banks receive the closest attention.
When a correspondent decides the revenue no longer justifies the compliance cost and risk, it closes the account. That is de-risking, and for a respondent in a small market it can mean losing dollar or euro access altogether. A payment company banked by a respondent inherits the same vulnerability one level down.
In practice
A respondent that lets other banks use its correspondent account must disclose it. Undisclosed downstream use is one of the most common reasons correspondents exit.
Commonly confused with
| Term | How it differs |
|---|---|
| Correspondent bank | The correspondent provides the account and the access. The respondent is the bank that uses them. |
See also
- Correspondent BankingCorrespondent banking is an arrangement in which one bank holds deposits for another bank and makes and receives payments on its behalf, normally so the second bank can reach a currency or a market where it has no branch or license of its own.
- Nested AccountA nested account is a correspondent banking arrangement in which a respondent bank lets other banks or financial institutions use its account at a correspondent, giving them indirect access to a payment system the correspondent never agreed to serve them in.
- De-riskingDe-risking is a bank exiting a whole category of customer, such as money services businesses, crypto firms or particular corridors, rather than assessing and pricing each relationship on its own facts. Accounts close because of what the customer is, not what the customer did.
- Nostro AccountA nostro account is an account a bank holds in a foreign currency at a bank in that currency’s home market, literally “our account with you.” It is how a bank keeps a working balance in a currency it cannot hold at its own central bank.
- Vostro AccountA vostro account is the account a foreign bank holds with a domestic bank in the domestic currency, or “your account with us.” It is the same account a nostro describes, seen from the books of the bank that holds it.
- Know Your CustomerKnow Your Customer, or KYC, is the process of identifying and verifying a customer before a business relationship starts and keeping that understanding current while it lasts, so a firm knows who it is actually dealing with. Identity verification is the first step of KYC, not the whole of it.