Legal Definitions - intermediary bank

An intermediary bank is a financial institution that acts as a middleman in a funds transfer, particularly when the bank sending the money (the originating bank) and the bank receiving the money (the beneficiary bank) do not have a direct relationship or an established account with each other. Its role is to facilitate the transaction by receiving funds from the originating bank and then forwarding them to the beneficiary bank, ensuring the payment reaches its final destination.

• Example 1: International Business Payment

  Imagine a small technology startup in San Francisco, USA, needs to pay its software development team located in Bangalore, India. The startup's local US bank does not have a direct banking relationship with the specific regional bank in India where the development team holds its accounts. In this scenario, the US bank might send the payment to a large international bank (the intermediary bank) that has established connections with banks worldwide, including those in India. This intermediary bank then receives the funds and forwards them to the Indian bank, which finally credits the development team's accounts.

  This example illustrates how the intermediary bank bridges the gap between two banks that lack a direct connection, enabling a cross-border payment to be completed smoothly.

• Example 2: Overseas Tuition Payment

  A student in Brazil is paying tuition fees to a university in the United Kingdom. The student's local Brazilian bank may not have a direct correspondent banking relationship with the specific bank used by the UK university. To complete the payment, the Brazilian bank sends the funds to a major global bank (the intermediary bank) that has a strong presence and relationships with many financial institutions in the UK. This intermediary bank then processes the payment and sends it to the university's bank in the UK.

  Here, the intermediary bank facilitates a personal international transfer, allowing funds to move between banking systems that are not directly linked.

• Example 3: Large Corporate Treasury Transfer

  A multinational corporation based in Japan needs to transfer a significant sum of money from its Japanese bank account to its subsidiary's bank account in Germany. While both banks are large, they might use different primary correspondent banks for certain currencies or regions. The Japanese bank could send the funds to a major financial hub bank in New York or London (the intermediary bank) which specializes in large international transfers and has direct relationships with both the Japanese bank's network and the German bank's network. This intermediary bank then ensures the funds are correctly routed to the German subsidiary's account.

  This demonstrates how even large institutions might utilize an intermediary bank to optimize routing, reduce costs, or ensure efficiency for complex international treasury operations.