What Is an Agent Bank? 

An agent bank is a bank that performs services in some capacity on behalf of an entity. An agent bank, also known as agency bank, can offer a wide variety of services for businesses looking to expand internationally. These banks generally act on behalf of another bank or group of banks, but they can act on behalf of a person or business.

Key Takeaways

  • An agent bank operates as a go-between for an individual or business looking to do business in other countries. 
  • An agent bank can represent a group of banks, which is the case if they are the lead bank in a syndicated loan. 
  • There are various banks that can be considered an agent bank, including investment banks.
  • LendingClub, the online peer-to-peer lending platform, uses third-party agent banks to operate its business. 

Understanding Agent Banks

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. The specific roles of the agent bank will depend on the arrangement made with the client.

An agent bank can also be syndicate, where it’s the point-of-contact for a borrower that’s taking loans from several banks. In this case, they are the lead bank in a syndicated loan and they keep the other banks appraised of developments while sending them interest payments.  

Benefits of Agent Banks 

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.

The benefits of an agent bank include the fact that they can operate internationally. These banks allow businesses to expand their geographic presence, as having a bank that knows how to operate in various countries is advantageous. These types of banks make accessing funds while abroad easier.

Agency banks also allow businesses to delegate administrative tasks, where the agency bank can handle the finances of a business.

Types of Agent Banks 

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

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-party 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.