A custodian bank is a financial institution that is responsible for holding and keeping safe the various assets of an investment company. The assets can include any type of security, including stocks or bonds, as well as assets like jewelry or other valuables. Banks of this type provide services to investors, as well as angel investor groups, and even individual investors.
Sometimes referred to simply as a custodian, the basic responsibility of the custodian bank is to receive and keep safe the assets delivered by the investor. This includes stocks as well as bonds. The bank always maintains the ability to grant access to those assets to the investor, as well as render an accounting of the current status of those assets, in terms of their value.
Along with safekeeping of the assets, a custodian bank also assists in the purchase and sale of assets on behalf of the investor. This can include making sure that any purchased assets are properly received, logged, and accounted for under the terms of the investor’s account. At the same time, the custodian bank is instrumental in the orderly transfer of an asset to the new owner when the investor chooses to sell securities or one of the other types of assets that are entrusted to the bank.
Because the work of a custodial bank can include the care and management of assets located around the world, it is not unusual for banks of this type to be referred to as global custodians. Often, the bank will manage this type of international situation by making use of their own system of branches, or networking with other custodian banks that are located in the same country as those assets. While a network of locations may be involved, the process of safekeeping still involves the creation of a central flow of data regarding the current status of each asset, a situation that allows the owner of the assets to easily obtain documentation that provides detailed information about all holdings entrusted to the bank.
One special type of custodian bank is known as an agent bank or sub-custodian bank. This designation is normally associated with banking functions in the United States. In this scenario, the sub-custodian bank is a financial institution that is located outside the borders of the United States or its territories. Their function is especially important when it comes to American Depositary Receipts, or ADRs.
The agent bank will hold a set number of share stock to correspond with ADRs that are being traded on a home stock market. This process makes it possible for the ADRs to retain a price that is considered convention by US standards, even if the prices of the shares held by the sub-custodian would not be the same if converted directly at the current foreign exchange rate. This helps to keep the process of trading simple when international assets are involved, and is considered one of the more important functions of a custodian bank when it comes to the management of any type of security that can be traded in the marketplace.