A bank holds accounts at one (or more) other correspondent banks for each (main) currency it settles payments in.
The bank that owns a correspondent account at another bank refers to such account as a Nostro account (“our account at your bank”). The correspondent bank will refer to the same account as a Vostro account (“your account with us”).
These correspondent banks handle payments for the banks they service an account for.
Relationships are typically reciprocal.
Settlement Method – CSM (Clearing and Settlement Method):
Banks hold NOSTRO account with the Clearing house.
Clearing System/house does the settlement by debiting one bank’s account and crediting other’s.
Mostly used for domestic clearing and settlement e.g. SEPA.
Settlement Method – Cover:
“Typical” European method.
Used for scenarios where debit party agent and credit party agent do not have Nostro/Vostro relationship but they can be reached over SWIFT network.
A Cover (typically MT202-COV/MT910) is sent via OPF Bank’s correspondents towards the credit party agent to settle the payment.
An Announcement (typically MT103) is sent as close as possible, to the credit party agent, to inform the credit party agent that funds will arrive.
Settlement Method – Serial:
“Typical” US method.
Mostly used for scenarios where debit party and credit party agent do not have Nostro/Vostro relationship and they are NOT connected via SWIFT network.
Payment (typically MT103) sent via the OPF Bank’s correspondents towards the credit party agent and settled based on the message.
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