Who is a Custodian Bank and How They Run the Business?

A custodian bank is a specialized financial institution responsible for the safekeeping and administration of financial assets on behalf of clients like mutual funds, pension funds, insurance companies, and hedge funds.

Unlike commercial banks, custodian banks don’t lend money or deal with individual customers. Their core function is to protect client assets and manage post-trade activities.

How They Run Their Business:

Custodian banks generate revenue by offering value-added services and charging fees. They operate through direct custody in major markets and sub-custodian networks in emerging ones. They ensure asset safety, trade settlement, and regulatory compliance.

Example – Citigroup (Citi) Custodian Business

Citi Securities Services provides custody in over 60 markets and handles more than $27 trillion in assets.

• Direct custody in major countries
• Sub-custodians in niche markets
• Serves mutual funds, sovereign funds, pension funds, and hedge funds
• Charges custody, transaction, fund service fees, and earns from securities lending

Global vs. Local Custodian Services

Global Custodians:

• Citi, BNY Mellon, JPMorgan Chase, State Street

Local Custodians:

• HDFC Bank – India
• BNP Paribas – France
• Nomura – Japan
• CaixaBank – Spain

All Services Provided by Custodian Banks

Service	Description	Example
Asset Safekeeping	Holding securities securely	Citi holds Apple shares for a pension fund
Trade Settlement	Ensures delivery of securities and cash	JPMorgan settles a bond trade for BlackRock
Corporate Actions	Handles dividends, splits, rights, etc.	BNY Mellon processes Apple’s dividend
Income Collection	Collects interest and dividends	State Street collects T-Bill interest
Fund Accounting & NAV	Daily NAV calculation and reports	Citi calculates NAV for an Indian mutual fund
Tax Services	Tax filing and reclaim support	Nomura reclaims tax for an investor in the UK
Proxy Voting	Votes in shareholder meetings	Citi votes in Amazon’s AGM
Securities Lending	Lends securities for fee income	BlackRock lends Apple stock via Citi
Foreign Exchange	Currency conversion for trading	Citi converts USD to EUR
Cash Management	Short-term investment of idle funds	State Street manages ETF cash