What is correspondent banking?
Definition
Correspondent banking is the network of bilateral bank relationships that moves money across borders: banks hold accounts with one another and settle payments by adjusting those balances.
A payment from a mid-size market to another mid-size market rarely travels in one hop. It chains through correspondents, each holding a nostro or vostro account with the next, and each adding fees, screening time, and its own cut-off windows. The network is also shrinking: BIS data shows the number of active correspondent banking relationships fell about 25 percent between 2011 and 2020, even as payment volumes grew (BIS CPMI, 2021).
The retreat hits emerging market corridors hardest, where fewer relationships mean slower settlement and higher costs. This is the system stablecoin settlement routes around: value moves onchain in minutes and touches banks only at the fiat edges. We wrote a longer piece on how stablecoins are replacing correspondent banking.
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