DEFINITION of 'Instructing Bank'

An instructing bank is one of the banks that plays a role in a transfer of funds between two parties. The instructing bank is the one that initiates the fund transfer process. This institution receives instructions on whom to send the funds from the customer, along with the specific amount the customer wants sent.

BREAKING DOWN 'Instructing Bank'

An instructing bank is also known as the ordering party. It is the opposite of an advising bank, which receives the transfer of funds and then alerts the receiving party that the transfer has been effected. The same bank can be both the instructing bank and advising bank on different fund transfers.

Instructing Bank and Wire Transfer

A common form of a transfer is a wire transfer (an electronic transfer of funds across a network, which hundreds of banks worldwide administrate). In a wire transfer, banks or financial institutions do not exchange any physical money. Instead, banks pass specific information along about who the recipient is, what her bank account number is, and how much money she is receiving. Banks will then settle all payments on the back end.

In addition to a traditional bank account number, an international bank account number (IBAN) can add an extra layer of specificity in certain transfers, particularly overseas payments. The IBAN number consists of a two-letter country code, followed by two check digits, and up to thirty alphanumeric characters. These alphanumeric characters are known as the basic bank account number (BBAN).

Three IBAN examples are: Albania (AL35202111090000000001234567), Cyprus (CY21002001950000357001234567), and Kuwait (KW81CBKU0000000000001234560101) for 2018.

While an IBAN is used to identify a particular account number, a SWIFT code (the Society for Worldwide Interbank Financial Telecommunications) identifies a banking institution in complex overseas transfers. SWIFT is a messaging network that financial institutions use to securely transmit information. SWIFT assigns each financial organization a unique code with either eight characters or eleven characters. The first four characters are the institute code, the next two characters are the country code (e.g. IT for the country Italy), the next two characters are the location/city code, and the optional last three characters correspond to individual branches.

For example, if a customer New York Bank of America (BofA) branch wishes to send money to her friend who banks at the UniCredit Banca branch in Milan, the New Yorker can walk into her local BofA branch with her Italian friend’s account number, along with UnicaCredit Banca’s unique Milanese SWIFT code (UNCRITMMXXX). After she delivers this information, Bank of America will send a SWIFT message to the UniCredit Banca branch. Once Unicredit Banca receives the SWIFT message about the incoming payment, it will credit the specific amount of money to the Italian account.

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