Custodian Bank

A Custodian bank is a financial institution responsible for safeguarding a firm’s or individual’s financial assets. A custodian bank is also known as a custodian. A custodian bank acts as a third party watchdog responsible for protecting investors’ assets from any illegal activities of the fund manager.
Custodian banks were setup under the Investment Company Act of 1940 which was passed by Congress to protect investors. This legislation required investment companies to register with the Securities and Exchange Commission and to meet strict listing requirements.

The main function of a custodian bank is to look after the financial assets of an individual or a business entity.
safekeeping assets such as equities and bonds, arrange settlement of any purchases and sales of such securities, collect information on and income from such assets (dividends in the case of equities and coupons in the case of bonds),provide information on the underlying companies and their annual general meetings, manage cash transactions, perform foreign exchange transactions where required and provide regular reporting on all their activities to their clients.
The custodian banks are extremely important in the modern financial context.

Functions of Custodian Bank

To give reports on all the various business deals or trades to their clients. These reports have to be provided at a consistent basis
To look after financial assets like bonds and equities
To give data on the underlying companies as well as the general meetings of these companies that are held on a yearly basis
To make agreements for finalizing the buying and selling of securities like bonds and equities
To look after the business deals that have been done in cash
To gather necessary data of the assets like bonds and equities
To execute deals of foreign exchange transactions whenever it is necessary to do so
To accumulate the income from the sale of the bonds and equities. As far as the bonds are concerned the payment is from the interest of these bonds. With regard to the equities it is the dividend.

Global Custodians
The custodian banks that provide their services throughout the world are also known as global custodians. These custodian banks employ their own local branches or yet other custodians for managing the assets and accounts of their consumers. In such cases the assets are held by pension funds.
Local Custodian Banks
The local custodian banks manage the American Depositary Receipts that are released in the stock markets of the United States of America by companies that are headquartered outside the USA.

The PFPC Division of PNC Financial Services Group
BNP Paribas
Kaupthing Bank
Brown Brothers Harriman & Co.
Northern Trust
RBC Dexia
Credit Suisse
Societe Generale
German Bank AG
State Street Corp.
Goldman Sachs
The Bank of New York Mellon
JPMorgan Chase
Union Bank of California

Since 2001, Thomas Murray, a banking research company, initially in partnership with Global Custodian Magazine, began publishing global custody ratings of both Global and Local Custodian banks.

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Last Updated on : 1st July 2013

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