Definition

Correspondent Banking System

The unique feature of unit banking system is the correspondent banking system. This is an arrangement with which banks carry account with banks in the neighboring cities and these banks in turn have accounts with the large cities like New York. Banks in New York have correspondent bank relation with many branches throughout the country. The small bank in the small community, which holds deposits for the small bank is the correspondent bank.

The major service of the correspondent bank is clearing of cheques and movement of funds from one place to another. Another valuable service rendered by the bank is strengthening the financial resources of banks during tight money periods. It also acts as source of information and helps in various operations.

Share it:  Cite

More from this Section

  • Devaluation
    Devaluation is a downward change in the official parity of an exchange rate from that ...
  • Counter purchase
    Counter purchase refers to exchange of goods between two parties under two distinct contracts ...
  • Guaranteed renewable
    Guaranteed renewable means continuance provision of a health insurance policy under which ...
  • The International Fisher Effect
    International Fisher Effect can be defined as a theory that the spot exchange rate should ...
  • Monetary Targeting
    Monetary Targeting is a policy which attempts to directly limit the growth in the total ...