Offshore banks are essentially banks that are located in other countries, such as in the Caribbean and Europe. These banks are allowed to accept International consumers and do business with organizations, corporations and individuals. A moderately astute investor should choose banks that can be trusted and guaranteed by local governments. The country where the bank located itself should be very stable, without any political or economic turmoil in recent years. Without an offshore banking license and jurisdiction, a bank is just a regularly licensed bank and it doesn’t easily accept International consumers.
We may also need to deal with the risk of bank failure. This could happen when the offshore bank is unable to fulfil the demand for funds withdrawal from all their depositors. There are a number of reasons why this could happen, some could be bad, but others are not so bad. We should know whether the bank is already under the protective ratios. When the condition is bad enough, it is possible for the local financial ministry to close down the bank. However, if the situation isn’t so bad, the local government could require the bank to increase the ratio to a more acceptable level.
Signs of bank failures could be indicated by early complaints of the local licensing authority. It could happen when requests of funds withdrawal are not met by a bank. The account holder could file a formal demand and after a short deadline, the bank is required to pay. When the demand can’t be met, there will be a formal complaint from the local bank licensing authority and an investigation will be conducted. Independent or in-house auditors can be assigned by the licensing authority to ensure that the bank could work properly in the near future. They will see whether there are loans that don’t meet the local guidelines.
Loans are principal source of revenue for banks and if there are problems associated with them, this would indicate a red flag. The bank could be in trouble if there’s not enough collateral to back up the loans. Unfortunately, when the formal complaint process has been filed by the licensing authority, it may already be too late. In this case, we should make sure that offshore banks that we choose are closely monitored by local governments.
Another problems associated with offshore bank is the loss of correspondent banks. It means that the offshore bank can’t properly execute wire transfers. It is possible to take one extra week before account holder could obtain their funds. This is also a good reason for accounts holders to file complaints and the local authority should investigate. We need to make sure that a bank is fully capable in delivering the required amount of money.
When problems have become severe and it is difficult for account holders to withdraw the fund, the next scenario is to sue the offshore bank. However, this could happen rather quickly, especially when depositors are acting jumpy and getting scared a bit too easily.