Nostro account

Nostro and vostro (from Italian, nostro and vostro; English, 'ours' and 'yours') are accounting terms used to distinguish an account held for another entity from an account another entity holds. The entities in question are almost always, but need not be, banks.

The terms nostro and vostro are used, mainly by banks, when one bank keeps money at another bank. Both banks need to keep records of how much money is being kept by one bank on behalf of the other. In order to distinguish between the two sets of records of the same balance and set of transactions, banks refer to the accounts as nostro and vostro. Speaking from the point of view of the bank whose money is being held at another bank:

A vostro account is the same as any other bank account. It is a record of money held by a bank or owed to a bank by a third party (an individual, company or bank). The nostro account is a way of the bank whose money it is, keeping track of how much is being held by the other bank. It is similar to an individual keeping a detailed record of every payment in and out of his or her bank account so that she/he knows the balance at any point in time.

In normal usage:

For these accounts the domestic bank is acting like a custodian or managing the accounts of a foreign counterpart. These accounts are utilised for facilitating the settlements of Forex and foreign trades.

A client bank elects to open an account with another facilitator bank. The facilitator bank will assist the client bank in making payments in its country's currency, usually using its own access to primary clearing arrangements (generally with the Central Bank in the country where the currency is considered a local currency). In some cases the facilitator bank may not be a primary clearing member but they will have the ability to make payments in local currency, possibly through another bank in the same country.

A bank counts a nostro account with a debit balance as a cash asset in its balance sheet. Conversely, a vostro account with a credit balance (i.e. a deposit) is a liability, and a vostro with a debit balance (a loan) is an asset. Thus in many banks a credit entry on an account ("CR") is regarded as negative movement, and a debit ("DR") is positive - the reverse of usual commercial accounting conventions.

With the advent of computerised accounting, nostros and vostros just need to have opposite signs within any one bank's accounting system; that is, if a nostro in credit has a positive sign, then a vostro in credit must have a negative sign. This allows for a reconciliation by summing all accounts to zero (a trial balance) - the basic premise of double-entry bookkeeping.

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