Are Offshore Banks Safe?

Offshore banking is popular amongst individuals and businesses around the world. Banking offshore allows for greater privacy and can assist in reducing one’s tax burden.

Despite the many benefits, many still doubt the safety and security of offshore banking, which is a perfectly reasonable question. Objectively speaking, offshore banking is safe. During the Great Recession, US banks were merely the safest in the world.

However, this is not a matter of mind but a matter of heart as this involves fear of potentially losing your hard-earned money by trying something new. Therefore, it is always wise to take certain measure to help ensure your financial safety when banking offshore.


1. Diversify Holdings

Many people assume that it’s fully secure to place their assets in domestic banks accounts. While you may have an easily accessible domestic bank account, that does not guarantee your financial safety.

Any investor would know thar diversification is crucial in any financial planning, yet far too many individuals still fail to do so. The reality is that there is no completely safe investment or banking system. Hence, the best way to reduce such risks is via diversification. This means embracing industry diversification, investment diversification and geographic diversification.

It is possible for economies and banking systems to struggle. When this happens, those that are the most secured would be those that have assets overseas. By banking offshore, your holdings are financially safer and more secure than those who only bank domestically.


2. Offshore Destination

The safety of an offshore bank truly does boil down to the quality and reputation of the individual bank. Even in a secure and stable jurisdiction like Belize may have banks that failed.

Prospective clients should always consider the stability of the bank by checking the percentage of liquid assets the bank has at any point of time. Most of the time, banks with a high liquidity ratio tend to be more stable than banks with a low liquidity ratio.

Apart from that, the bank’s history, origins and reputation are also important. There would be banks with solely online presence and limited reviews, but also banks with years of experience and great reviews, always go for the latter.

No banking choice would be fully guaranteed. Nevertheless, for peace of mind and a more stable financial future, offshore banking should be part of your asset diversification plan.


3. International Regulations and Guidelines

Although international banking has grown and become the foundation for the global economy, no one regulator oversees international banks to ensure the safety and soundness of the entire system. Therefore, we can use certain guidelines to benchmark our risks, such as:

         i. The Basel Framework

The Basel Framework is the full set of standards of the Basel Committee on Banking Supervision (BCBS), which is the primary global standard setter for the prudential regulation of banks. The membership of the BCBS has agreed to fully implement these standards and apply them to the internationally active banks in their jurisdictions.

        ii. Systemically Important Financial Institution (SIFI)

Post-financial crisis, the focus of financial regulation has shifted to protecting the financial sector from itself. SIFIs are a creation of Dodd-Frank, and any bank with assets above $50 billion is deemed systemically important (savings and loans are not included). These 38 banks must adhere to stricter requirements on capital and liquidity than other banks. They must also go through yearly stress tests and have a plan for orderly liquidation. The SIFI can be accessible here.

        iii. Credit Rating

Credit ratings are opinions about credit risk generally performed by a credit rating agency such as S&P Global, Moody’s, or Fitch Ratings. Each agency applies its own methodology in measuring creditworthiness and uses a specific rating scale to publish its ratings opinions. Typically, ratings are expressed as letter grades that range, for example, from ‘AAA’ to ‘D’ to communicate the agency’s opinion of relative level of credit risk.


4. Personal Assets Protection

Should you want to protect your personal or business needs, keeping them with an offshore bank may be the safest option out there.

If someone decides to sue you for any reason, authorities can do a domestic search to determine your discoverable assets placed with the local banks. However, your offshore assets will not appear in those search results. This is an alternative option as some lawsuits are frivolous, having your assets frozen would make no sense.

In many offshore locations, privacy is a given for account holders. This even pertains to the government in some cases. If your domestic assets are frozen because of a divorce or a criminal case, for example, the United States government won’t be able to seize or freeze your international assets kept in offshore banks.

Although no one wants to think about the potential for a legal battle or a frivolous lawsuit, it is safer and wiser to be prepared.


Desfran Consultancy is an International Consultancy firm that will be able to assist with your banking needs, consult one of our expert banking advisors here.

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