For a treasurer, the correspondent model has a quiet cost centre: balances that sit still. Money held in nostro accounts abroad is capital doing no work, parked so that cross-border payments can move on demand. The larger the corridor footprint, the more of it accumulates — and none of it can be spent at home.

Where the capital sits

Every nostro account holds a buffer in a foreign currency at a partner bank. Multiply that across currencies and corridors and a bank can be prefunding dozens of relationships at once. None of those balances earns the return it would at home; all of them must be monitored, topped up and reconciled.

Timing adds a second layer of difficulty. Balances must be sufficient when a payment lands, not merely sufficient on average, so buffers are sized for the worst plausible day rather than the typical one. The vostro side of the same relationship belongs to the partner, so the same money is reflected twice across the network — once as an asset here, once as a liability there.

Why netting changes the picture

If flows pass through one point, offsetting flows can cancel before anything moves externally. A simple example: bank A sends €10m, while participants B and C are due to receive €8.5m. Only the €1.5m difference has to leave the hub; the rest is settled internally against other participants' flow. Internal FX handles currency, so a mismatch in currencies does not automatically force an external leg.

That does not eliminate prefunding — participants still need liquidity where they hold it — but it changes how much capital has to be ready at any one time, because far less gross value crosses the external boundary.

What treasury gains

The gains are structural rather than promised: fewer accounts to fund, less idle balance per corridor, fewer reconciliation points, and settlement that happens inside the network rather than hop by hop.

This is general information, not financial, tax or legal advice.

In short

  • Nostro balances are prefunded capital that sits idle by design.
  • Buffers are sized for the worst case, not the average day.
  • Netting lets offsetting flows cancel, so only the difference leaves the hub.
  • The structural effect is fewer accounts and less idle balance per corridor.

See how the model is structured at /institutions/.