What Is an Authorized Bank?

An authorized bank is a financial institution that has been approved by a national or federal government to process various types of payment transfers that would otherwise be handled exclusively by the central bank or central payment agency operated by that government. Essentially, any bank approved for the purpose of handling the decentralized payment transfers is granted the ability to issue checks for specific government agencies, including any type of national benefit programs that the nation provides to retirees and others. The criteria for being recognized as an authorized bank will vary somewhat from one country to the next, based on the banking laws that apply in that particular nation.

It is not unusual for an authorized bank to manage payment transfers related to a specific function of one or more government agencies. For example, one of these types of banks may be empowered to handle processing of payments from a national government to state or provincial governments as part of the funding for various types of state level projects. In other instances, an authorized bank may serve as the means of issuing funds that in turn are disbursed to individual citizens covered under various types of compensation plans, such as veterans who receive benefits, or retirees who receive some type of pension from the federal government.

By creating a network of authorized banks that help to manage the orderly distribution of funds from a national government to various jurisdictions within the country or to a program that in turn provides benefits to citizens, essential tasks are allocated in a manner that expedites the timely receipt of those disbursements. The process also aids in creating an accounting trail that is relatively easy to follow and provides means of keeping the transfers secure and less likely to be subject to diversion or tampering. While this process is often multi-layered, it is those layers that help to preserve the integrity of the transactions and minimize the opportunity for funds to be utilized for any purpose other than the one intended.

The authorized bank network within a given country will usually require that participating banks meet specific criteria established by the national government. Periodic reviews and audits help to ensure that the banks remain in compliance and are able to keep the authorization. The qualifications for being granted these types of responsibilities will vary, based on the current structure of banking and financial laws within that particular country.