Custodian banks are financial institutions legally responsible for safeguarding an individual's or firm's securities (investments). A client chooses a custodian bank over self-management because custodian banks offer cost savings resulting from a large client base which leads to utilizing more systems; the result is lowered administrative costs with efficient and effective investment maneuvers for their clients. These savings increase when clients invest in areas where they don't have local operations, because custodian banks know how to negotiate unforeseen issues in the local and global market.
Custodian banks collaborate with a client to build strategies and goals. It is important to have a strong relationship with clear communication, so the custodian bank understands what you want and decides the best course of action for your assets. Understand custodian banks before utilizing them and consider the following:
1. Why would you want to have a custodian bank?
2. Do you want a small or large custodian bank?
3. How do custodian banks help you?
Save time using custodian banksWhether it is a large institution or an individual, a custodian banks consultant saves you time by professionally handling your financial assets on a daily basis. To improve your financial standings, custodian banks deal with: safeguarding assets, arranging purchases and sales of investment settlements, collecting information and income from assets (dividends and interest), providing information and annual meeting reports for the companies where monies are invested, managing cash and foreign exchange transactions, and providing reports to you for all of these activities.
Choose between small or large custodian banksRegulators and money managers are careful when choosing custodian banks because they hold the fund's assets. The latest trends for money managers is to choose bigger banks with a name because they know these banks do what it takes to protect their name and reputation. Given today's market, banks have to be big players with critical mass so you make money; smaller banks cannot compete with the opportunities and prices of the big banks.
Receive economic help with custodian banksWhen there is an economic downturn, custodian banks training increases as does their influence in bank integrations, building of infrastructures to increase the flow of capital, and development of methods to build global connections and reduce existing regulatory differences between markets. With these integrations leading to large entities, there comes the strength and stability to withstand external shakes. The downside is that it often takes decades to see these benefits.
Federal Reserve Board provides a discussion paper that discusses bank integration and financial constraints within U.S. Firms. Oxford Journals at the World Bank site provide an abstract that outlines the points regarding integration and investments within the global market.
- When considering a custodian bank, seek information about local and global custodian banks. The U.S. market is shifting to invest more globally - you want to be prepared on all fronts.