Companies incorporated in offshore jurisdictions are most of times managed, operated and beneficially owned by foreigners. Their banking relationship is often in another country to avail effectiveness. It is not always efficient due to the lack of direct physical access to the bank and its staff members. The main question for the owners of offshore companies and IBC’s is to find the appropriate location and institution to work with. This must be an interplay between availability and stability. Bank account protection is therewith manifested via regulatory frameworks, bank capitalization and deposit insurance. Such a trilogy ensures optimization and risk management at the same time.
Offshore companies and bank account protection is not the first thing that comes to mind for small business owners and location independent professionals when they first start in the industry. They need a corporate vehicle to conduct business and a bank account or other payment facility provider to send and receive money and pay for their expenses. Unfortunately they do not always make the appropriate risk assessment. Financial challenges can occur and bank closure is a realistic scenario when poorly prepared choices are made. Although distressed bank situations can be resolved by filing a Deposit Guarantee Claim with the appropriate DGS administration, this must be considered as a second line of defense. The choice for the best financial solution starts with the bank and the location of its head office.
Bank failure with severe consequences happens with privately owned financial institutions and systemic banks that are required to bail-in their creditors over the insured amounts. If a bank fails, it means that it is unable to fulfill its obligations to depositors or other creditors. This may trigger panic with creditors and trigger an avalanche of further distress. Insolvency can be resolved quickly by raising the banks subordinated capital position. Regulators therefore step in. They implement several measures to avoid disruption of the payment system and protect loss of money for the stakeholders involved. At first they urge the bank to recapitalize or appoint a statutory administrator. It is then decided how the future of the banking operations will look like. For smaller banks this often means a sale of their valuable portfolios or a forced liquidation.