An agent bank is a bank that performs services in some capacity on behalf of an entity. Agent bank services can encompass a wide range of duties. Agent banks may also be known as agency banks.
Breaking Down Agent Bank
Agent banks can serve the needs of both individuals and businesses through a broad range of services. They can include various forms and are willing to partner on a variety of different offerings.
Personal Accounts and Small Business Banking
Individuals and businesses partner with banks to support the management of their financial and cash transaction needs. These entities rely on an agent bank for managing funds in a deposit account. These banks can also support customers through letters of credit or extensions of new credit.
Foreign Agent Banks
A foreign bank doing business in the U.S. on behalf of its parent bank may be known as a foreign agent bank. Many of these banks are subject to Federal Reserve regulations and are audited by the Federal Reserve annually. They may also be allowed check clearing privileges and access to the Federal Reserve’s discount window.
Investment banks often serve as agent banks on institutional investment deals such as syndicated loans. An agent bank serving as a syndicate manager will contract with an issuer to arrange a syndicated loan. The agent bank in a loan syndicate works to facilitate the terms of the loan transaction with the multiple parties involved in lending funds to the issuer. The agent bank is paid a fee for their deal management services. Once the deal has closed, they may also be responsible for managing the oversight of syndicated loan payments and terms throughout the loans involved in the deal.
Third-Party Agent Banks
Oftentimes a business may need the support of an agent bank in order to launch new services. Partnership with a third part agent bank is common for credit businesses who need a bank’s support in offering credit cards or loan programs. An agent bank can partner with a business to support the issuance of credit cards in a new credit card program. Many agent banks have also partnered with private lenders to support the growth of new online lending businesses. Lending Club is one example of a private lender requiring the support of an agent bank for its services. Lending Club works with WebBank to facilitate the origination of its loans to its online borrowers.