In the context of correspondent banking, a respondent bank is a financial institution that establishes a relationship with another financial institution (the “correspondent bank”) in order to access a wider range of financial products and services. The respondent bank relies on the correspondent bank to provide these services on its behalf, and may also use the correspondent bank to clear financial instruments and facilitate foreign exchange transactions.
The respondent bank is typically a smaller institution that lacks the resources or expertise to offer certain financial products and services on its own. By establishing a correspondent banking relationship with a larger, more established institution, the respondent bank is able to offer its customers access to a wider range of financial products and services.
In order for a correspondent banking relationship to be effective, both the correspondent and respondent banks must have strong reputations and be well-regarded in the financial industry. This helps to ensure that the services provided are reliable and trustworthy and that the financial instruments being cleared or traded are of high quality.
This page was last updated on January 3, 2023.