A correspondent bank is a financial institution that acts as an agent for another bank, providing services and products in an area the other bank does not operate in so its customers can access things like wire transfers and international deposits. This allows banks of all sizes to do business in other regions and countries without having to open a new branch, keeping these services at an affordable price for customers. Banks of all sizes can act as correspondent banks, and numerous international financial institutions have a correspondent banking branch to provide services to smaller banks with less reach.
A basic domestic bank can offer local services to customers including deposits and loans. If those customers want to travel, accept international deposits, or engage in other activities outside the bank's coverage area, the bank either needs to open a new branch, or make an arrangement with a correspondent bank. New branches can provide a useful tool for expansion, but may not always be feasible or desirable. The correspondent bank provides a convenient solution.
At the correspondent bank, people can usually do things like making deposits and withdrawals, applying for extensions on lines of credit, setting up wire transfers, and so forth. There may be fees for these services, depending on the structure of the financial institution. It can perform a range of functions while acting as an agent. Customers need to be aware that it can take several days to process transactions through a correspondent bank, as the agent needs to process the request and then forward the information on to the parent bank.
Correspondent banking provides access to services from a home bank in a wide variety of locations around the world. Many banking customers expect this level of service, and offering it allows domestic banks to retain customers who might otherwise gravitate toward larger international financial institutions to get the benefits of the services they provide. Small banks may advertise their relationships with correspondent banks to make sure people are aware they can handle transactions outside the bank's primary service area.
Consumers should be cautious about the use of correspondent banks in scams. Scammers may claim that payments are held up at a correspondent bank, or that information was not correct and funds are being bounced back or held while waiting for corrections. People can check with their banks to find out which bank they use as an agent, and can contact the correspondent bank directly to get information about questioned and disputed transactions. Personnel can provide information about pending transactions and other financial activity.