Loan

What is the difference between a correspondent bank and intermediary bank?

A:

Correspondent and intermediary banks serve as third-party banks that coordinate with beneficiary banks to facilitate international fund transfers and transaction settlements. The differences between them are not consistent; depending on where you are from, correspondent banks are distinct from intermediary banks, or they can be a type of intermediary bank, indistinguishable from intermediary banks.

The Role of Third-Party Banks

Wire transfers – an electronic method of sending cash to another person or entity -– are very common transactions with all banks, but international wire transfers are costlier and more difficult to execute.

In certain parts of the world, such as Australia or EU member nations, banks that deal in international transfers are called intermediary banks. No distinction is made between intermediary and correspondent banks.

Foreign Currency Transactions

In other parts of the world, such as in the United States, there is sometimes a delineation between specific roles for intermediary and correspondent banks.

The most commonly cited difference between the two is that correspondent banks handle transactions involving more than one currency. For example, if the transferring party is dealing in U.S. dollars and the receiving party is in France, there is a correspondent bank covering all transactions from dollars to euros.

There is another corresponding bank in France that deals in foreign currency for the recipient. Most of the time (though not always), the correspondent banks are located in the country where the two currencies are domestic.

Intermediary banks forward cash for foreign transactions, but these transactions don’t involve multiple currencies. Most of these cases involve an originating bank that is too small to deal in foreign transfers, so the aid of an intermediary bank is enlisted.

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