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Offshore Banking
Expressed simply, offshore banking refers to the banking business involving transactions conducted by an overseas bank on behalf of an account owner who resides in foreign country.
Offshore banking does not only refer to offshore banks, as any bank could operate as an offshore bank once it engages into the business of accepting deposits and or making financing available to persons who are not resident in the country in which the bank operates. Of course, a separate department, separate set of records and account would be maintained for these offshore transactions and clients and very importantly, licensing to be engaged in offshore banking must be received from the relevant authority. Many local commercial banks thus conduct offshore operations because legally, it is made possible through local legislation and operate accordingly based on the requirements and conditions established for offshore banking.
Because of advancements in communications and information technology, people from around the world are able to access offshore banking services that are offered by offshore banks no matter the hundreds of thousands of miles by which the two are separated. Offshore banking is not an esoteric activity, and attracts overseas students, people employed in foreign countries, expatriates, small and medium sized businesses, multinational corporations an enterprises, as well as governments who all in one way or the other require banking services that are sufficiently advanced to accommodate their business demands.
One important note about offshore banking is the fact that offshore banking operations tend to develop into a very sophisticated system of banking in territories with significant industrial activity such as Tokyo and London, but even more so, under very friendly tax regimes where banks are able to maximize their net profits as a result of low or zero taxes, minimal government interference in offshore banking activities and the absence of exchange controls. These three factors open up offshore banking to numerous individuals and corporations to which a greater degree of financial freedom in terms of moving capital is important. Low taxes or zero charges on offshore banking activities reduces expenses and decreases losses on savings and deposits.
The City of London, New York, Singapore and Hong Kong are major international financial centers (IFC’s) are known for their high concentration of offshore banking facilities and services. These locations are identified as primary IFC’s, as opposed to secondary IFC’s which tend to operate on a lower scale but have stock exchanges and attract significant amounts of foreign capital. Based on these and magnitude of offshore banking business and supporting services found, a distinction is often made between offshore banking centers (OBC’s) which are likened to offshore tax havens and IFC’s.
In offshore banking, international and local regulation has become important because of the degree of convergence that has taken place in banking systems on an international level and the multinational scope of offshore banking transactions which implicate various countries in the process of transferring funds from one country to the other. The importance of offshore in the global economy requires that measures be put in place, not to restrict trade which has been almost fully liberalized, but to ensure that safety of economies and personal lives globally because of the systemic risks that could be developed in the absence of these.
The benefits of offshore banking, however, in making capital widely and more readily available to investors across the globe is one that presents opportunities and help to foster the creation and distribution of wealth across geographical frontiers.
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