Legal Definitions - depositary bank

A depositary bank is a financial establishment that accepts deposits, loans, exchanges, or issues money and transmits funds. It is a member of the Federal Reserve System and is supervised and examined by state or federal banking authorities. A depositary bank is the first bank to which an item is transferred for collection.

For example, when a person deposits a check, the depositary bank is the first bank to receive the check for processing and collection. The depositary bank sends the check to the paying bank for payment and credits the depositor's account once the funds are received.

Another example is when a company issues a bond. The depositary bank holds the bond on behalf of the bondholders and pays interest and principal payments to the bondholders.

Depositary banks play a crucial role in the financial system by providing a safe place for people to deposit their money and facilitating the movement of funds between different banks and financial institutions.