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.

RELATED TERMS
  1. Society for Worldwide Interbank ...

    Society for Worldwide Interbank Financial Telecommunications ...
  2. Book Transfer

    A book transfer is the transfer of funds from one deposit account ...
  3. Wire Transfer

    A wire transfer is an electronic transfer of funds across a network ...
  4. Current Transfers

    Current transfers are current account transaction in which a ...
  5. Direct Transfer

    A transfer of assets from one type of tax-deferred retirement ...
  6. Automatic Transfer Service (ATS)

    An automatic transfer service (ATS) is a banking service that ...
Related Articles
  1. Personal Finance

    How the SWIFT System Works

    SWIFT has become the global standard for processing instructions and messages for payment and securities trade transactions. Investopedia explains what SWIFT is, how it works, how it makes money, ...
  2. Investing

    Best Ways to Send Large Sums of Money Abroad

    Understand why it may be difficult to send large sums of money internationally. Learn about the top five ways to send large sums of money abroad.
  3. Investing

    5 Money Transfer Tips For Foreign Workers

    If you are working in the U.S. as a foreign worker, here are some tips for sending money back home.
  4. Personal Finance

    Transferring Credit Card Balances To A New Card

    Before you take advantage of that new credit card's 0% interest balance transfer offer, read our step-by-step guide.
  5. Insights

    Punjab National Bank $1.8B Fraud Raises Questions About SWIFT Security

    SWIFT is the financial messaging system at the center of the greatest banking heist in Indian history.
  6. Tech

    The Future Of Mobile Banking (JPM, BAC)

    Typically slow to react to technological change, retail banks are finally recognizing the benefits it provides to consumers as well as the cost savings it gives the firm.
  7. Tech

    The Pros And Cons Of Internet Banks

    Learn how internet banking services stack up against their brick-and-mortar peers. Find out what internet banks have to offer and where they fall short.
  8. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
  9. Tech

    Does Blockchain's Popularity Mean The End Of SWIFT?

    Blockchain is becoming popular with banks for cross-border transfers. Does this mean the end of SWIFT?
  10. Personal Finance

    Banking Has Changed: What Does It Mean For Consumers?

    Banks have long been leading spenders on technological innovations. Learn the key changes in the banking industry and what institution is right for you.
RELATED FAQS
  1. Are there any regulations on transfer pricing?

    Learn about transfer pricing, its role in intra-business calculations, and how the U.S. government regulates transfer pricing ... Read Answer >>
  2. How do you transfer common stock from one broker to another?

    Understand how common stock assets are transferred from broker to broker using the Automated Customer Account Transfer Service ... Read Answer >>
Trading Center