Intermediary Bank Law and Legal Definition

Pursuant to U.C.C. § 4-105, a bank to which an item is transferred in course of collection except the depositary or payor bank is an intermediary bank. An intermediary bank acts as a middleman between suppliers of funds and users of funds; and substitutes its own credit judgment for that of the ultimate suppliers of funds.

The bank collects the funds from three sources:

checking accounts, savings, and time deposits;

short-term borrowings from other banks; and

equity capital.