A bank (the principal) which has an account with another bank (the agent, or the correspondent bank) that allows it to make payments for its own account and on behalf of its clients. Also, the principal bank can collect deposits through its agent bank, and can avail of banking services that can’t usually be obtained without the intervention of a correspondent bank. Typically, principal banks have limited access to financial markets or overseas geographic regions, and therefore seek the services of big banks to conduct specific transactions. In most cases, the two banks are located in different cities or countries. Agent relationships don’t include transactions between banks as principals (i.e., in the wholesale market).
It is also known as a respondent bank.
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