correspondent banking

Correspondent banking is an account that is established by a domestic banking institution on behalf of a foreign bank for the purpose of handling various financial transactions related to the foreign bank. Correspondent banking allows foreign banks to conduct business in the U.S. and provide services for their customers in areas where the bank does not maintain a physical presence. In a nutshell, foreign banks open correspondent accounts with U.S. banks to avoid the expense of operating a U.S. office. "Coresspondent banking also known as a relationship entered into between a small bank and a big bank in which the big bank provides a number of deposit, lending, and other services(**).
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An arrangement under which one credit institution provides payment and other services to another credit institution. Payments through correspondents are often executed through reciprocal accounts (nostro and loro accounts), to which standing credit lines may be attached. Correspondent banking services are primarily provided across international boundaries, but are also known as agency relationships in some domestic contexts. A loro account is the term used by a correspondent to describe an account held on behalf of a foreign credit institution; the foreign credit institution would in turn regard this account as its nostro account.