Nostro reconciliation

IN ONE LINE

An everyday analogy: you keep a diary of everything you spend, and once a month you sit down with the bank statement and tick items off against each other.

Ticked lines are boring — boring is success.

The interesting lines are the ones only in the diary (you thought you paid; did you?) or only on the statement (what is this charge?).

A bank does exactly this, except the 'diary' is its own ledgers, the statements come from every bank where it holds an account, and the exercise runs every single day.

Reconciliation is that tick-and-chase discipline — and the untickable leftovers, called breaks, are where errors, lost payments, and occasionally fraud first show themselves.

WHAT IT ACTUALLY IS

Reconciliation compares what your ledgers expected against what actually happened, using independent evidence.

The flagship case is nostro reconciliation: your ledger holds a shadow of each account you keep at other banks; the servicing bank sends statements — classically an end-of-day MT940, with intraday confirmations such as the MT910 — and a matching process pairs statement lines with expected ledger entries.

Whatever fails to pair is a break: money that arrived unannounced, payments sent but not showing, amounts that differ.

Break causes are usually mundane — timing across midnight, fees deducted en route, references truncated or reformatted, duplicates from a resend — but every break must be explained, because the rare non-mundane cause is exactly what the control exists to catch.

HOW IT WORKS

Practitioner reality is matching rules and break management.

Engines match in passes: exact on reference, then amount-and-date within tolerance, then heuristics, then a human.

Automation rates vary widely between institutions — reference quality from correspondents is the usual ceiling, since a servicing bank that truncates or rewrites references defeats exact matching at the source.

Breaks get typed (ours-not-theirs, theirs-not-ours, amount difference), aged, owned, and escalated; unexplained items land in suspense with the clock running.

One-to-many matching is the subtle skill: a single settlement line at a CSM can represent thousands of underlying payments netted together, so the engine must match a batch total against its members.

Month-end attestation — a named person signing that each account reconciles — turns the daily grind into a formal control.

THE WORDS

Reconciliation

Comparing two records of the same activity — such as a bank's own ledger and its correspondent's statement — and investigating every difference.

READ FIRST

• Accounting entries and ledgers

CONNECTED TO

• MT940 MT940 — Customer Statement Message
• MT910 MT910 — Confirmation of Credit
• CHECKPOINT Payment operations checkpoint
• EXCEPTION LAB The announcement without the money: a cover that never matched

SOURCES

• Swift Standards MT (annual standards releases) — Swift
• Payments Signal editorial teaching models — Payments Signal