How do custodian banks work?


Quick Answer

The primary role of custodian banks is to safeguard the assets of institutional, corporate or individual clients. This includes holding stock certificates, securities and other assets.

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Full Answer

A custodian bank is not involved in traditional banking services such as offering personal accounts, mortgages or loans. Many mainstream banks, however, have custody bank divisions.

Custodian banks look after a variety of activities on behalf of clients. This includes physically holding equities, bonds, precious metals, stocks or currency. They assist in settling purchases and sales on behalf of their clients, and they help manage accounts and transactions. They also often handle legal and regulatory commitments like reporting on the status of tax or assets. They perform foreign currency transactions.

Custodian banks also often handle the investments of their clients. This involves making money available to brokerage companies so that investments can be made as well as researching new investments and monitoring existing positions.

Therefore, a custodian bank operates in two main ways. The first is that it offers its clients a place where securities can be held securely. The second way that a custodian bank operates depends on the individual bank and covers all of the additional services, from administration services to support services to transactional services.

Custodian banks are sometimes appointed to look after the assets of individuals under 18 years of age and people who are incapacitated.

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