When would a correspondent bank typically be utilized?

A correspondent bank is a financial institution that provides services on behalf of another bank, often to facilitate transactions and services between banks in different countries. This is particularly relevant in the context of international payments, where the correspondent bank serves as an intermediary that enables banks that do not have a direct relationship to execute transactions. By doing so, these banks can process cross-border transactions efficiently, ensuring that funds move smoothly across different currencies and regulatory landscapes.

When it comes to international payments, the correspondent bank plays a crucial role in handling foreign currency exchanges, compliance with international regulations, and navigating the complexities involved in cross-border transactions. They often maintain accounts with each other to ensure liquidity and facilitate the necessary exchanges.

Thus, the utilization of a correspondent bank is essential when banks need to conduct transactions that go beyond their immediate geographical or operational reach, especially in international payment contexts.