Nostro Account

A nostro account is an account that one bank holds on the books of another bank providing correspondent-banking services. The account-holding bank, also called the respondent, sees it as “our account with you.” The other bank is the correspondent, or service provider. “Our” therefore refers to the respondent bank, not to an individual or business customer whose payment it may support.

How a Nostro Account Works

The correspondent maintains the account on its own books and holds a deposit owned by the respondent. These are separate roles: the bank servicing the account is not, merely by recording it, the owner of the respondent’s deposit. The correspondent provides payment and other services to the respondent through this bank-to-bank relationship.

Payment messages communicate instructions rather than moving money themselves. For a payment to settle, the relevant interbank accounts are debited and credited. The instruction and those account entries have different roles: receiving or sending a message is not itself the settlement of the transfer.

In a hypothetical example, Bank A holds a deposit with Bank B, which acts as its correspondent. The account recorded on Bank B’s books is Bank A’s nostro account. Bank A sends Bank B a payment instruction, and settlement occurs through the relevant account debits and credits. If the payment is for one of Bank A’s customers, that customer is not the holder of this interbank account: Bank A remains the respondent.

Nostro, Vostro and Loro

• Perspective. Under the European Central Bank’s (ECB) correspondent-banking survey convention, a nostro account is the respondent’s “our money with you,” while the service-providing bank describes the same account as vostro, or “your money with us.” In the hypothetical example, Bank A uses the nostro perspective and Bank B uses the vostro perspective for the same account.
• Ownership. The difference between nostro and vostro is the bank’s viewpoint, not a transfer of ownership of the deposit. The respondent remains the deposit owner, while the correspondent records and services the account on its own books.
• Terminology Conventions. Loro depends on the convention being used: the ECB survey discusses it for a third-party bank’s account, whereas the separate ECB glossary uses loro for the service-providing bank’s view. When interpreting these labels, identify the source’s convention rather than assuming that loro and vostro always mean the same thing.

Uses and Important Distinctions

A nostro account supports correspondent payments between banks, including payments made for the respondent’s customers. Those customers do not thereby become holders of the interbank account. A settlement bank describes an institution performing a settlement role; nostro identifies an account from the holding bank’s perspective. Neither a customer’s personal or business account nor a merchant account should be confused with this bank-held correspondent account.

The definition of a nostro account also differs from an analysis of prefunding risk. The existing article on nostro prefunding examines funding economics; the term itself identifies whose account is held with which bank. That relationship alone does not establish that advance prefunding is always required or that a payment will have a particular speed, cost or liquidity outcome. Those outcomes cannot be inferred merely from the account label.