OFFSHORE BANKING

Presented by:

Heramb Awasti Prasad Gawali Kaveri Khedkar Shruti Pawaskar

M-12-03 M-12-17 M-12-25 M-12-45

An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantage.

Introduction

The origins of the offshore banking industry are found in a group of islands off the northwest coast of France: the Channel Islands. The intent was to seize upon the frustration of UK and European residents fed up with oppressively high rates of taxation and insufficient safeguards to privacy and confidentiality in their home countries.

History

An offshore banking center is a country whose banking system is organized to permit external accounts beyond the normal scope of local economic activity. The major offshore banking centers recognized by IMF are:
the Bahamas Bahrain the Cayman Islands Hong Kong the Netherlands Antilles Panama Singapore

Offshore Banking Centers

Offshore banking
Cross Border intermediation of funds Provision of services by banks residing in OFCs to non-residents

Deals with other Financial Institutions Transact wholesale business dominated in currencies other than that of the country hosting the OFC

Overview

OFCs are jurisdictions where offshore banks are exempt from a wide range of regulations

Countries may decide to establish OFCs for a number of reasons

Deposits are not subject to reserve requirements Bank transactions are mostly tax-exempt or treated under a favourable fiscal regime They are free of interest and exchange rate restrictions Exemptions with respect to liquidity or capital adequacy
To gain access to international capital markets To attach needed foreign technical expertise and skills

Most OFCs are countries, but some important OFCs are located within the border of countries OFCs can be exploited for dubious purposes Offshore banking is a pervasive activity

Benefits

Primary OFCs

Secondary OFCs
Booking OFCs

Classification

Carried out through Offshore establishments. Three types of Transactions: 1. Eurocurrency loans and deposits. 2. Eurobonds. 3. Over the counter Trading.

How Offshore Banking Is Done

Many expatriates manage their money from two separate bank accounts. A local currency bank account in the host country and an offshore bank account . This account may be denominated in sterling or a number of different currencies reflecting your life-style, investments and longer-term spending plans. A euro mortgage for a property in mainland Europe, for example, will be secured in euros.

Which Type of Bank Account?

 Merits
1.

Demerits

2.
3. 4.

5.

Bank in Multi Currencies. Avoid the risks. Tax benefits. Maximum flexibility for transactions. Account Privacy.

Illegal Money Laundering. Stability of Offshore Havens. How to resolve issues ,if any ?

Increased operational leeway of offshore banks for balance sheet management. Less likely to be unprofitable.
More liquid than onshore banks More likely to be highly leveraged.

Micro and Macro Prudential Issue

Transmission of risks emulating out of lack of capital account restrictions. Downloading of funds from offshore banks to parent banks

Potential for transmission of risks increases. Transmission of risk is equivalent to that in ordinary cross-border banking when offshore banks and onshore banks are unrelated.

THANK YOU