A vostro bank account is an account that one party is holding for another party. In a vostro account, the administrators are not actually the owners of the money. They must keep this account solvent on behalf of its owner. Vostro account administrators, often banks, frequently pay interest to other parties for the use of their money.
Vostro accounts are just a way of talking about who owns the capital invested in them. To a customer who puts money into a bank account, that account is a “nostro” account, meaning that it belongs to that person. From the standpoint of the bank, it is a “vostro” account, meaning that it is not the bank’s own money, but the customer’s, and the bank bears a responsibility for good accounting of the customer’s money. This makes sense, since “voster” in Latin or “vuestra” in Spanish means “yours.”
A vostro account can be useful in the Forex, or foreign exchange, industries, where money needs to “go to market” in foreign markets and be traded into foreign currency, or alternately, kept as a foreign currency to that destination market. Parties holding vostro accounts are acting on behalf of their customers to get returns. This also happens in a wide variety of stock trading or stock options trading situations, where a broker is the party that holds the vostro account for clients.
In contrasting nostro and vostro accounts, those who are learning about finance find that these designations help to distinguish different kinds of banking systems, and information about who is the owner of invested money. In addition to these types of accounts, there is another one, again based on Latin/Italian etymology, called a “loro” account. This is also useful in talking about who owns a certain bank account.
A loro account is an account seen from the vantage point of a third-party. It is not “ours” or “yours” but rather, “theirs.” A loro account is an account held by one party, administrated by a second party, and audited or assessed by an outside interest. Loro accounts are most often used in syndicated financing, and are not common in many parts of the financial industry.
Although these kinds of accounts seem complicated, they’re really pretty simple. Labeling accounts helps to keep ownership issues straight. It also helps to provide incentive for the account holder to practice transparent and competent accounting.
