Vostro Account
A 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.
Also called: your account with us
Nostro and vostro are bookkeeping perspectives, not two different products. A bank that opens a foreign-currency account at a bank abroad calls it a nostro account: our money, held by you. The bank at the other end, which now carries a foreign bank’s balance on its books, calls the identical account a vostro account: your money, held by us.
What the holding bank takes on
Running vostro accounts is a business with its own risk. The domestic bank is providing access to its home payment system to an institution whose customers it has never met, so it is relying on the foreign bank’s controls rather than its own. That is why these relationships attract due diligence on the correspondent’s AML program, restrictions on nested access by third banks, and periodic review, and why a bank withdrawing from a region tends to close vostro accounts first. The relationship they sit inside is correspondent banking.
In practice
Vostro and nostro are the same account described from opposite ledgers, and which word applies depends only on whose books you are reading. Neither term tells you anything about the account’s terms, its currency limits, or what the holding bank will permit.
Example
A UK bank needs to pay a beneficiary in India. It instructs its Indian correspondent, which debits the rupee vostro account it maintains for the UK bank and credits the beneficiary’s bank. On the Indian bank’s books the entry reduces what it owes a foreign customer. On the UK bank’s books the same entry reduces its nostro balance.
Commonly confused with
| Term | How it differs |
|---|---|
| Nostro Account | Two names for one account: nostro on the books of the bank that owns the balance, vostro on the books of the bank that holds it. |
| Correspondent Banking | Correspondent banking names the relationship between the two banks; a vostro account is one of the accounts that relationship runs on. |
See also
- 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.
- 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.
- 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.
- Cross-Border PaymentA cross-border payment is one where the payer and the payee are in different jurisdictions. It usually involves a currency conversion and at least one intermediary, and it answers to the rules at both ends rather than only the sender’s.
- SettlementSettlement is the point at which value actually moves between parties and the obligation between them is discharged. It is a separate step from clearing, which only works out who owes what, and from finality, which is the moment the transfer can no longer be reversed.