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

  • Project loans
    Project loans is the credit designed to finance the construction of fixed assets associated ...
  • Money market deposit accounts (MMDAs)
    Money market deposit accounts (MMDAs) is the short-maturity deposits having a term of ...
  • Speculative motive
    Cash balance held by a firm to take advantage of opportunities in any time of firm's normal ...
  • Automatic exercise
    Automatic exercise is a protection procedure whereby the Options Clearing Corporation ...
  • Loan commitment
    Loan commitment means a bank’s commitment (for a specified future period of time) to ...