The Problem – Choosing the Right Bank. Here a bank, there a bank, everywhere a bank-bank. A song, or a reality? These days it is a reality. With so many banks to choose from, it is important to understand their similarities and differences as well as their strengths and weaknesses.

The Solution – Finding a Bank That Meets Your Needs. For an individual, choosing the right bank could mean the difference between obtaining a mortgage and remaining in an apartment. For a business, choosing the right bank could mean the difference between obtaining a loan and going out of business. Finding a bank that meets your needs can be trickier than it sounds. Let’s look at the two broad categories of banks.

Community Banks. Often started by executives that defect from larger banks, community banks have been starting up throughout New Jersey. In traditional corporate fashion, many of the more successful community banks were acquired by the regional and national banks in the late 1990’s. This has left a void, thus an opportunity for new banks to flourish.

One of their key advantages for customers is direct access to senior bankers and top management. With a community bank, employees on the front line have more discretion to make decisions than a larger bank that must follow stricter policies and procedures from corporate headquarters. For example, with most large banks the decision to offer a mortgage to an individual is based primarily on the applicant’s credit score.

A community bank has the flexibility to review the application, review the credit score and meet with the borrower to gain an understanding of any unique circumstances that may influence a final decision to offer a mortgage.

Community banks can offer personalized services the larger banks have a difficult time matching. Whether it is a teller’s smiling face or a bank officer delivering documents to your business, community banks go a long way towards proving a high level of personalized service. Community banks have done a good job of retaining their staff, allowing them to provide a consistent customer experience.

Weaknesses of community banks include their limited branch network, lending capabilities and range of financial services. Unlike some of the larger banks, many of the community banks have a small number of branches. Fortunately, most offer Automated Teller Machine cards that can be utilized around the world and internet access 24 hours a day, seven days a week. A growing business may realize the local community banks simply cannot offer the $30 million loan needed to expand the operations, due to bank lending restrictions. Consumers looking for investment services and insurance services will often times be turned away at the community bank. A number of community banks have recently begun offering these services through partnerships with companies that specialize in these services.

Regional and National Banks. Some consumers like the idea that they can go into the same bank, no matter what city (or state for that matter) they are in – just like a fast food chain. Having the luxury of making a deposit at a branch near your office or a withdrawal near your home is a luxury some consumers just cannot resist. Many of the larger banks have hundred of branches in a wide spectrum of locations, from supermarkets to office buildings to stand alone locations.

Businesses that deal in cash, like restaurants and gasoline stations, may require a regional or national bank with branches close to each of their locations. Some businesses must deposit cash in their bank account two times a day to reduce the risk of theft. Larger businesses seeking capital to grow may need the lending solutions offered by regional or national banks. The regional and national banks have tremendous lending capacity locally, nationally and globally. Most regional and national banks offer a wide variety of financial services, from investments to insurance to trusts. These services may be offered by employees of the bank or through outside partners.

Conclusions. Selecting the right bank should be based in your individual needs. Customers looking for a large branch network or large loan capability may be best suited with a regional or national bank. Customers looking for personalized service, direct access to top management and more flexible loan criteria may be best suited with a community bank. Sometimes, it just comes down to supporting a local business in your community.

Article Source: http://EzineArticles.com/?expert=Aaron_Skloff

Introduction: What does a Bank have to do with CAMELS? Plenty! It could be the deciding factor in a Bank being allowed to function, or even being shut up. The higher the Bank climbs up the CAMELS, more the chances of it being done in! This is one score a Bank would do well to keep low!

Actually, CAMELS is the acronym for the six factors that form the basis for an international Bank rating system. These six factors are: Capital Adequacy, Asset Quality, Management Quality, Earnings, Liquidity, and Sensitivity to Market Risk.

Under this rating system, Banks are rated in relation to the quality of these six factors. The strength of these six factors would determine the overall strength of the Bank. The quality and strength of these six factors underlines the inner strength of the Bank and how far it can take care of itself against the market forces. Further, it also enables the regulatory authorities to focus on the Banks that are not doing well and to pay special attention to them.

The regulatory authorities not only study the financial statements of the Bank, but also carry out on site inspection, and thereafter rate the Bank. The rating system is based on a scale of 1 to 5 with 1 being the highest score and 5 the lowest. Banks scoring 1 would be considered as among the top bracket in regard to their financial soundness, and those scoring 5 would be seen to be at the bottom of the ladder.

Purpose: The purpose of this rating system is to examine the financial and other soundness of the Bank, and alert the top management of the Bank to take timely measures to address any deficiencies and stop the Bank from sliding to the bottom of the heap.

The CAMELS rating is carried out with reference to the following factors:

1) Capital Adequacy: Every Bank is expected to have sufficient capital to address its needs in relation to the risk it undertakes in its operations. The ratio of the capital of a Bank in relation to its risk weighted assets must meet the minimum requirements.

The Basel II Accords promoted by the Bank for International Settlements, Basel, Switzerland, stipulates a minimum Capital Adequacy Ratio of 8%. This is the bare minimum required, and Banks are strongly recommended to have a comfortable Capital Adequacy Ratio that takes care of any untoward occurrences.
The need for sufficient capital cannot be overestimated. It is the base on which the Bank stands, and its strength can be gauged by the strength of its base. The edifice of the Bank draws its strength and succor from the foundation of capital.

In line with the need for a strong capital base of a Bank, the Bank for International Settlements has come out with an elaborate set of recommendations that are expected to put in place, a mechanism that is proactive and responsive to the needs of the Bank in countering the threat to its well-being from the elements of risk. For this purpose, weights are allotted to each type of risk the Bank faces in its day to day operations, and accordingly, the amount of capital required to face up to this risk is worked out.

2) Asset Quality: The term Asset Quality refers to the quality of the loan portfolio of the Bank. Lending being one of the primary activities of a commercial Bank, the welfare of the Bank is dictated to a large extent, by the quality of its loan portfolio. A sound loan portfolio means a steady income for the Bank, apart from adding to the solvency of the Bank and consequently its rating.

To ensure asset quality, the Bank has to follow a sound lending regimen that ensures compliance of all the related norms. Some of the parameters for judging the soundness of a loan account are the components of safety, security, liquidity, purpose, profitability, etc.

In the process of lending, Bank has to take all reasonable precautions to ensure the safety of its funds. The evaluation of credit proposals must focus on the technical feasibility and the financial viability of the project, or venture under consideration. The purpose of the loan must be in consonance with activities that relate to productive application of capital. The result of such application should be the generation of a stream of income necessary for repayment of the loan. The quality of loan assets, to a large extent determines the viability of a Bank as a running concern.

3) Management: By Management is meant the art and science of accomplishing the goals of the institution by deploying all the necessary resources appropriately. Management includes Planning, Organizing, Staffing, Directing, and Controlling functions.

Planning is concerned with drawing up the blueprint for the objectives and goals of the Bank, and lay the path to reach them. Planning is a all encompassing activity that touches upon all the activities of the Bank.

Organizing is the next step after planning, and is concerned with putting in place the necessary infrastructure, including human resources to achieve the Bank’s corporate goals.

Staffing, as the term indicates, is concerned with filling up the various positions in the Bank with suitable people.

Directing means channeling the energies of the employees towards achieving the Bank’s corporate goals, by motivating the employees with rewards, both monetary, as well as in terms of their career goals.

Controlling is a function of management that involves establishing a performance standard for the employees and taking suitable steps in regard to the principle of reward and punishment.

A Bank that scores high in this area, namely, management, is bound to come up with a strong performance, and also contribute to the solidity of the Banking industry, as a whole.

4) Earnings: The earnings of a Bank refer to the net profit made by it. Profit is the difference between income and expenditure. The major sources of income for the Bank are interest earned on the loans and other income derived from general banking activities like, remittances, bills, etc. Apart from these, related activities undertaken by the Bank like Bancassurance, etc, also contribute to the Bank kitty.

The expenditure of the Bank may relate, among other things, to salaries, wages, administrative overheads, rents, rates, taxes, etc. The net surplus that remains after taking care of all the expenses is the net profit.
A healthy Bank should be able to generate decent profits regularly and keep itself, as well as its investors, in good health.

5) Liquidity: Liquidity is simply the ease with which an asset of the Bank can be encashed in times of need, or its fair value. It is that quality of an asset that enables a Bank to respond to any financial situation requiring urgent infusion of money or money’s worth. This quality of the asset ensures that a Bank faces the minimum stress in dealing with such situations.

Apart from a financial crisis or crisis like situations, liquidity is also required to meet regular financial obligations of the Bank, especially without dipping into its reserves. Liquidity marks the ability of the Bank to field expected as well as unexpected financial problems and issues.

6) Sensitivity to Market Risk: Market forces are a major reason for shifts in the fortunes of businesses. Favorable movements can boost the fortunes of a Bank, while unfavorable ones can send the Bank packing to the cleaners. Market forces generally relate to the changes in Interest Rates, Currency Rates, Commodity Rates, and Stock Prices. Further these changes are inter-related in a complex way, and disturbances in one area are usually accompanied with the same in other areas.

A sound Bank is expected to have sound risk management practices in place, to take care of both known and unknown risks. The asset-liability match of the Bank must be in consonance with risk management principles.

Conclusion: The current Banking Crisis, which is quite unprecedented, underlines the importance of regulatory issues and the affects of incompetence in this area.

CAMELS, as a rating system for judging the soundness of Banks is a quite useful tool, that can help in mitigating the conditions and risks that lead to Bank failures.

Article Source: http://EzineArticles.com/?expert=Muhammad_Haidar

In some counties around the country, foreclosures are at all-time highs. As a result, in today’s market, the best deal for homebuyers is quite often the bank-owned property.

While many real estate professionals claim their business is off by as much as 60%, agents who concentrate on bank-owned properties are experiencing the second coming of the gold rush.

In the Las Vegas, the bank-owned real estate market is somewhat of an unknown. For many years, someone who was on the verge of foreclosure simply listed their home for sale and found a willing buyer to step in and save the day. As a result, many experienced real estate professionals and homebuyers are not as familiar with the process of buying a bank-owned property. Hopefully, this newsletter will help.

A bank-owned property or REO for “Real Estate Owned” is any property where the lender or bank has taken back ownership through a foreclosure, short sale, or other related act.

In the Las Vegas market today our inventory has swelled with this product. Many pundits believe this is the very tip of the iceberg and many, many more are coming.

It’s important to understand there is a difference between a foreclosure and an REO. The REO is what happens after the act of foreclosure and after an unsuccessful foreclosure auction.

This newsletter will help you understand the process of buying a property that is owned by the bank. This is not about buying a home in foreclosure or in pre-foreclosure.

There are far more benefits, far less stress, and it’s much easier to buy an REO property than a pre-foreclosure. Let’s walk through it.

So Joe Smith bought a house in 2005 for $350,000. He did 100% financing, interest only, and he recently lost his job. Joe couldn’t make his mortgage payments so he called a real estate agent to sell the house. The agent regretfully advises him his house is worth $340,000 today and by the time he pays commissions, closing costs and late payments to the mortgage company, he will have to write a check to close his house for $30,000.

Joe can’t afford to do that so when he fails to make his mortgage payments, he is eventually foreclosed on by his bank, and evicted from his home.

Now, the bank has a foreclosure sale or auction. They require a minimum bid of $378,000 for the property. This minimum bid includes the balance of the loan, accrued interest, the attorney’s fees for the legal action to get to this point, and all of the other money associated with this foreclosure.

At the foreclosure auction, the bank requires that any bidder have their $378,000 money ready that day in the form of a cashier’s check for the full amount of their bid. They also let the bidders know that they will get the house “as is,” with no repair allowance, and with all other liens that are on it.

Since Mr. Smith didn’t have much equity, neither does the bank, and when they add all of these fees to the auction price, the minimum bid becomes a price at or well above market value, like in this case $378,000. That means it rarely ends up getting bid on.

This means the property ends up back in the hands of the bank and now you have an REO.

The bank now owns the property, and it gets recorded on their books as a sellable asset. Banks are in the business of loaning money and maximizing their value through strong business practices like checking, savings, lending, and making money for their shareholders.

They are not usually in the business of owning real estate.

They want to turn this asset into cash, so they put the home on the market with the goal of selling it as quickly as possible.

To accomplish this they will usually reduce the price of all of the costs they had at the foreclosure auction like the legal fees and such. They will list it and market the property with an experience REO real estate agent who can advertise it and put it on lock box for easy access. They will get rid of all of the liens.

They will put the property in the very best position possible to move. So in this case, you would expect the house to go back on the market for somewhere around the market value of $340,000.

But don’t read too much into this. Just because they want to sell it fast doesn’t necessarily mean that they will dramatically reduce the price further below market value. In some cases they will, but in others they won’t. It’s a sell-able asset and they want to make as much as possible.

This is where you come in.

First, you will want to contact a lender to make sure you are qualified to buy a home, the home is qualified for the lender, and how much you are qualified to buy.

Next, and equally as important, you want to contact a real estate agent and let them know you are interested in purchasing an REO.

Not all REO properties are a bargain. Its important that you hire a real estate professional who can let you know if you are getting a deal or not. Ask your agent to do a “CMA” or “comparative market analysis” on the property and find out what its worth in today’s market.

Do your research before making an offer. Buying a bank-owned property is often a great opportunity but is also has its challenges.

I spoke with Dan Humeston, with Century 21 Moneyworld, who is considered one of Las Vegas’ top REO agents. No one in this market today is busier than Dan.

A recent report listed Dan as the number one producing real estate agent in Las Vegas so far in 2007 and by a far margin. I understand he is currently #3 nationwide for all Century 21 agents.

I asked Dan, who is a long-time expert in REO, what you can do to make sure your offers are accepted and also what you can expect when making an offer on a bank-owned property.

Dan says agents and their clients have to understand what they are getting into before moving forward. Here is what you need to know.

#1) KNOW THE HOUSE AND HOW THE LOAN APPROVAL PROCESS WORKS ON BANK-OWNED PROPERTIES

Banks are exempt from providing you with a real property disclosure. Therefore, before you even think about making an offer you have to do an initial inspection of the house. You want to understand what damage has been done to the home and what your lender says about it. Some of this damage may not make it through the lending process and you need to be aware of that before making your offer.

Items like a damaged roof, broken windows, AC and heating problems, exposed wiring, or missing flooring can make it so your lender cannot loan on that home. Before making an offer, make a list of the repairs that you see that need to be done. Go over this list with the lender and the appraiser then decide whether or not to move forward.

Dan says this is the number one problem he faces today on offers. The client makes an offer but has no idea how the repairs necessary will affect his loan. The bank knows what damage will not make it through the lending process and may reject the offer simply because you haven’t done your research.

Knowing if the home is able to get a loan on it is something that needs to be done before you make an offer. The house has to qualify just like the borrower’s do.

#2) DEALING WITH REPAIRS

A quick tour of REO properties and you soon discover that people going into foreclosure rarely take care of the home at the end. It can take four to eight months for a person to be foreclosed on. They sometimes get angry and knowing they are losing the home anyway, they fail to maintain it in a satisfactory condition. It is not uncommon during your tour to find dead landscaping, broken windows, holes in walls, stained carpet, broken fixtures, missing appliances, and much worse.

Banks will often ask that you buy the property “as is.” You probably assume this means none of those items will be fixed should you decide to buy the home. However, Dan says that isn’t always the case. On occasion, you may be able to negotiate to get some minor repairs done.

Dan recommends that once again, before you make your offer, you analyze the repairs that are necessary. Get with the lender and his appraiser and find out which repairs will be absolutely necessary for the loan to happen. Put together a price for these, let’s say $3500.

When you make your offer, ask for $3500 in “appraisal-condition repairs” or “lender-required repairs.” Use those exact terms. Dan says he may be able to sell these to the bank. If you just say “$3500 for miscellaneous repairs,” you dramatically reduce your chance of acceptance.

However, let’s say you did your initial inspection of the house, you didn’t see a lot of problems and you make your offer. During the formal inspection with the home inspector, you learn the home has $10,000 in roof damage. Your lender tells you the roof needs to be repaired before you close escrow. The bank refuses to pay for it as it wasn’t in the original offer. Don’t plan on the bank giving you access to the home during escrow to fix this, Dan says. The liability and the risk are too high for the bank.

#3) SLOWER PROCESSING OF YOUR OFFER

You will make your initial offer in writing. Unless it’s a full list offer with no additional concessions, the offer may require the listing agent to go back to the seller, the bank, for approval. The bank may be in a different time zone. Banks are closed on weekends.

Also, always remember, that banks are in the money business, not the real estate business. Your transaction is secondary to their day-to-day business and may be treated as such.

If they have a dedicated department that handles REO properties for them, and many do, they may have 3-4 people who have to review it first.

I have heard stories of banks taking 30-45 days to answer counter offers. In this time, they may get an offer better than yours and you are out. If you really love the house and think it’s a great deal, you will want to be very careful about your counter offers.

I recently heard a story about a bank that took nearly 50 days to answer a counter offer that was only 3% off of list. The buyer got angry on the 45th day and walked. Five days later when the bank called to say they accepted the offer, the buyer had moved on. There is little sense of urgency from banks today if the offer is not clean and near full price.

Dan says if you want this to happen quickly, make a clean offer, with a higher net to the bank, and get your due diligence done in 10 days or less. If you are an agent and you want 2 additional points, make a higher offer. The bank doesn’t care what you make, they have a net figure in mind. And don’t ask for the appraisal to be paid by the bank. They rarely will accept that.

When you make your offer feel free to ask for what you want, like closing costs, repairs, and more. However, the more you ask for, the longer you will want to plan on waiting for the answer.

Its also very important that you or your real estate agent find out how much the bank has on the books for the loan on the property. If they have $350,000 on the books and they are listing it for $310,000, they will not be too excited about an offer for $290,000 where you are asking for closing costs.

If they have $280,000 on the books and they are listing it for $310,000, your offer for $290,000 plus closing costs may be a winner.

In a declining market it’s very important to know the actual market value of the property. I am doing a loan for a client who saw an REO that was listed for $465,000. His agent advised him the property was only worth $420,000. However, the bank had taken it back with a loan on it for $510,000. He offered $400,000 and got it.

Dan says banks decide how much to list their properties by studying the recent comps, not by what they have in the deal. They want to net as much as possible and that may mean they are selling it a big profit, not a loss.

#4) HIGHER EARNEST MONEY DEPOSITS

In today’s market with 23,000 houses, many sellers will let you make an offer with a deposit of $1000 or less. With bank-owned properties this number will usually be much higher. Plan on $5000-$20,000 or 3%-5% of the asking price. I recently saw $15,000 of earnest required on a $300,000 home.

#5) PREQUALIFYING WITH THEIR BANK

The bank that owns the property may ask you to get pre-qualified with their bank before making your offer. You don’t have to use them. You can choose whatever bank you want for your loan but they want to make sure you are a real candidate. They also want to try and make some more money on the home by being your lender.

I recently pre-qualified a low credit score buyer who was putting down 30% on an REO property that was held by a major bank who recently reduced their subprime guidelines. He couldn’t qualify with them but I demonstrated that I had him approved. They still turned him down.

On the flip side, if you end up in that spot, I highly recommend that you have your lender contact the listing agent to walk him through the strengths of your loan.

I have another loan currently where the property was the REO of another large bank, the borrower went through their pre-qualification process, and his offer was declined. I spoke with the listing agent, went over the entire loan with him and its strengths, presented him a detailed approval letter from my in-house underwriter, as well as a two-week close of escrow, and we got the deal.

Dan says these loan requests usually come from a different department at the bank that sees this as an opportunity to generate revenue. The REO departments simply want these homes off their books and don’t care who does the loan. However they have a right to make sure your lender is not a flake and the pre-qualification letter is real. Asking you to pre-qualify through them just to test your worthiness is not an outrageous request.

#6) THE HOME INSPECTION IS MORE IMPORTANT THAN EVER

Make sure you hire a very reputable home inspector and that he inspects the home very carefully. A lot of damage could have been done by the previous owners and a lot of it unseen by just walking through. As we discussed earlier, before making your offer you want to be sure to factor in the costs of the repairs you will have to do. However, you may want to make sure your offer is contingent on termination if the damages are far greater than originally disclosed and expected.

If your home inspector turns up additional damage like this, this could be an opportunity. If you are still willing to go forward, contact the bank and renegotiate the deal with the new information. They may be willing to lower the price and you may get a well-earned and valuable price break. However, you don’t want to plan on this.

A client of mine, who specializes in fixer-uppers, has had some success renegotiating on bank-owned properties by presenting a detailed list of the damage he sees to the bank before he makes an offer. After the formal inspection, he does a new list.

He gets a professional contractor to prepare a cost analysis to fix the damage after he gets the report from the inspector and then presents this to the bank. Once again, this won’t always work on “as is” but can be very effective as it gives the bank the opportunity to see a real list of the damage with details of the costs that it will take to repair.

The bottom line to buying a bank-owned property is get pre-qualified as a borrower, get the house’s damage pre-qualified with your lender to review the possible challenges in the loan before making your offer, don’t plan on the bank’s willingness to “give the house” away, and be patient for answers.

Article Source: http://EzineArticles.com/?expert=Aaron_Gordon

The first question that you may have in your mind: why you need to think to reclaim bank charges? You are certain that you are wrongly charged by the bank, but you are not sure whether the laws support you to reclaim bank charges, or whether you are right at your place when you go to reclaim bank charges?

Well, you have the answers to all these questions. On 5 April, 2006, the Office of Fair Trading (OFT) concluded that default charges over £12 are automatically presumed to be unfair in terms of the Unfair Terms in Consumer Contract Regulations–it is noticeable here that unfair terms are legally unenforceable. These charges may include late payments on credit cards, unauthorized overdrafts, unpaid direct debits and standing orders, and missed payment fees on store cards and mortgages. So, if you think that you are wrongly charged by the bank, you are entitled to reclaim bank charges.

This does not mean that charges below the £12 limit will never be deemed as unlawful and you can reclaim these bank charges; but the difference is that the OFT will take enforcement action only for charges above £12.

The law behind reclaiming bank charges

The law behind the concept of reclaiming bank charges is simple to understand–it states that any charges that banks levy on their customers must be proportional to the actual costs they incur. However, most of the time, the set amount of charges levied by the banks are quite in excess than they actually have to incur, and therefore, you are entitled to reclaim bank charges.

If we take an example, an overdraft limit, or a cheque, or direct debit payment bounce has a charge levied by the bank equal to around £30 to £35 a time. This is obviously not in proportion to the cost that the bank has to incur; and moreover, this charge applies even when you go over your limit by a single penny! However, the official words from the courts are still pending, and till then, no certain law can be imposed on the charges levied by banks.

Process of reclaiming bank charges

To reclaim bank charges, you can follow this process:

Spotting unlawful charges

To reclaim bank charges, you need to spot them in your account statement. The charges levied on you that are over and above what an infringement costs the bank can be classified as unlawful. You need to spot such charged levied on your by the bank. You can get the information about these excessive charges from your bank statement.

Banks can provide statements for the past 6 years, but there would most likely be a charge per statement. There is a law however, under the Data Protection Act that allows you to request all transactions within the last 6 years, and can be charged no more than £10 for them. In this case, banks will probably provide the information in statement form.

Writing a money back request

Once you have calculated the excessive charges that have been levied upon you, you need to take the first step in intimating the bank for reclaiming bank charges. You may include all the information and other history that will support your reclaiming bank charges.

Waiting for the reaction of bank

When you send a reclaim bank charges note to your bank, the bank has 40 days to respond, if not you are free to report them to the Information Commissioner for a breach of the Data Protection Act. If they offer a partial refund against your reclaiming bank charges, you can refuse it. You can write again and reclaim bank charges in full amount.

Most of the replies received by the customers about their reclaiming bank charges are the banks stating that the customers are mistaken on this issue and that the charges are lawful–banks very tactfully tend to refuse to pay against your reclaiming bank charges. When you feel that there is no benefit in writing more to bank about reclaiming bank charges, you can move to the next step.

Learn about the court action

To reclaim bank charges when the bank is not yielding to the written requests, you can take initiative for a legal action. However, you need to take care that from now on you will incur the cost of starting a claim. In case your claim is less than £5,000, it will be heard in the small claims court, where you will not be held liable for the bank’s legal costs. It is also a better idea to open a new current account or switching to personal loans when you are trying legal action for reclaiming bank charges, for, the bank may try to close your account with them.

Making the claim

To reclaim bank charges, there are two options: one is to go to the local County Court in person; the second one is to the court system’s Money Claims online service. This feature allows people to make claims from the comfort of their computer, save details as they go along, and pay fees of between £30 and £120 online itself. The second option is simpler for reclaiming bank charges and saves a lot of time for you.

Action taken by bank

By this time, most probably you will get the money for reclaiming bank charges. If the bank does not respond to the demands, you will win by default in 14 days. However, if the bank takes a defense, your case of reclaiming bank charges enters a new step. Though, it is very unlikely that the bank will move for defense. But anyhow, if this is the case for your reclaiming bank charges, you will receive a court allocation questionnaire. You will need to fill it and send it back to the court within a week–you can also choose to send a copy of this questionnaire to the bank. By most chances, the bank will get out of it, and you will get your claim. However, if the bank does not back away at this point, the legal action will result in your winning the case.

Article Source: http://EzineArticles.com/?expert=Chris_Braithwaite

Barclays’ offshore banking solutions are often chosen by British expatriates who already have a business relationship with the bank before they leave the UK and who are aware of the bank’s pedigree and reputation. All in all Barclays offshore banking division services the main requirements of the individual and corporate client, and because Barclays have a good industry recognised reputation from Standard and Poors, Fitch and Moodys their offshore and international client base is apparently growing. The focus of the private and premier banking services available from the offshore division of the bank is the provision of a first class service for the management, protection and growth of a client’s wealth. Barclays International and Private Banking Division offer offshore and private banking solutions to those with cross border needs, the Division is a part of the 300 year old UK based Barclays financial institution. Offshore corporate banking services available from Barclays offer corporate clients or intermediaries the ability to streamline cross border trading and banking.

For expatriates, international business professionals or those with cross border needs who are seeking a straightforward offshore personal bank account, Barclays International Personal Banking from Barclays International and Private Banking Division offers easy and secure access to funds with telephone and internet banking available, discounts on international money transfers, the ability to bank in multiple currencies, international mortgages, UK tax advice, good interest rates and a safe and secure account are also offered and assured. For expatriates, international business professionals or those with cross border needs who are seeking a straightforward offshore personal bank account, Barclays International Personal Banking from Barclays International and Private Banking Division offers easy and secure access to funds with telephone and internet banking available, discounts on international money transfers, the ability to bank in multiple currencies, international mortgages, UK tax advice, good interest rates and a safe and secure account are also offered and assured. Offshore corporate banking services available from Barclays offer corporate clients or intermediaries the ability to streamline cross border trading and banking. In terms of the Barclays’ offshore banking services available, the group offer personal, corporate and private banking solutions as well as a unique international premier banking solutions for those with in excess of GBP 100,000 to bank and invest. For those seeking private offshore banking solutions there is an international private banking division at Barclays and also the aforementioned premier banking solutions which are available to those who require a more personalised banking and investment service from Barclays.

In terms of the Barclays’ offshore banking services available, the group offer personal, corporate and private banking solutions as well as a unique international premier banking solutions for those with in excess of GBP 100,000 to bank and invest. For those seeking private offshore banking solutions there is an international private banking division at Barclays and also the aforementioned premier banking solutions which are available to those who require a more personalised banking and investment service from Barclays. For those seeking private offshore banking solutions there is an international private banking division at Barclays and also the aforementioned premier banking solutions which are available to those who require a more personalised banking and investment service from Barclays. Offshore corporate banking services available from Barclays offer corporate clients or intermediaries the ability to streamline cross border trading and banking. Their relevant corporate products and services include financing, investing, day to day banking and trading – and as with personal Barclays offshore bank accounts, corporate accounts are also safe and secure as Barclays is a bank with an excellent reputation.

Offshore Private banking is most suited to those with in excess of GBP 1 million and the premier banking service is for those with in excess of GBP 100,000 – either to invest, trade or bank. For those seeking private offshore banking solutions there is an international private banking division at Barclays and also the aforementioned premier banking solutions which are available to those who require a more personalised banking and investment service from Barclays. But because Barclays has a growing international presence particularly across Europe, America, Africa and Asia their presence on the international high street is becoming more high profile. Barclays’ offshore banking solutions are often chosen by British expatriates who already have a business relationship with the bank before they leave the UK and who are aware of the bank’s pedigree and reputation. Their relevant corporate products and services include financing, investing, day to day banking and trading – and as with personal Barclays offshore bank accounts, corporate accounts are also safe and secure as Barclays is a bank with an excellent reputation.

For expatriates, international business professionals or those with cross border needs who are seeking a straightforward offshore personal bank account, Barclays International Personal Banking from Barclays International and Private Banking Division offers easy and secure access to funds with telephone and internet banking available, discounts on international money transfers, the ability to bank in multiple currencies, international mortgages, UK tax advice, good interest rates and a safe and secure account are also offered and assured. For expatriates, international business professionals or those with cross border needs who are seeking a straightforward offshore personal bank account, Barclays International Personal Banking from Barclays International and Private Banking Division offers easy and secure access to funds with telephone and internet banking available, discounts on international money transfers, the ability to bank in multiple currencies, international mortgages, UK tax advice, good interest rates and a safe and secure account are also offered and assured. Offshore Private banking is most suited to those with in excess of GBP 1 million and the premier banking service is for those with in excess of GBP 100,000 – either to invest, trade or bank. All in all Barclays offshore banking division services the main requirements of the individual and corporate client, and because Barclays have a good industry recognised reputation from Standard and Poors, Fitch and Moodys their offshore and international client base is apparently growing. Barclays’ offshore banking solutions are often chosen by British expatriates who already have a business relationship with the bank before they leave the UK and who are aware of the bank’s pedigree and reputation.

Article Source: http://EzineArticles.com/?expert=Bruce_Stander

1.1 INTRODUCTION

In recent years, universal banking has been growing its popularity in Indonesia. Mandiri Bank, for example, has taken strategy to become Indonesia’s universal bank; this bank has also initiated to develop an integrated financial risk system in terms of sounding financial performance and increasing shareholder value. In Germany, and most developed countries in Europe, universal banks have initiated its operations since nineteen century. There is mounting evidence that in those countries, universal banks have taken an important part in the development of real sectors and the financial system. In those countries, the growing numbers of universal banking practices are really supported by the regulation of central of bank.

Despite, in The United States, they are strict to regulate universal banks by blocking commercial banks from engaging in securities and stock markets practices. They argued that the practice of universal banking might be harmful for the financial system. ((Boyd et.al, 1998) cited in Cheang, 2004) The “risk” might be the key reason why the central bank of The U.S is worried about the universal banking system. Since, if the central of bank allowed banks to adjust their operation to be universal banks, the relationship among, banks, financial and stock markets would be closer. Consequently, this would give an uncertainty to the banks condition and performance. For example, if there were a disaster in stock market, banks would get problems in their financial positions. Thus, they would tend to be insolvent.

In addition universal banks would also threaten the market share of other specialized institutions, because more customers would choose universal banks that offer more option to their investment. Hence, more specialized institutions are likely to be ruined in the U.S financial industry.

One majoring factor, which is triggering a bank to be universal bank, is to increase the profit by enlarging their market share. According to João A. C. Santos (1998) universal bank itself can be defined as the financial institution, which enlarges its service range in terms of offering a variety of financial products and services in one site. Thus, by operating universal banking, banks could get a greater opportunity to expand to another financial area, such as : financial securities, insurance, hedge funds and etc.

Although the trend of banks has recently tended to universal banks, it is undoubtedly true that universal banks would also face further risks because a wide range of financial services is strongly associated with increasing risks and escalating monitoring costs. These are the major concerns why banks have to implement more advance technology in terms of financial risk management. Moreover, the practices of universal banks would cause significant risks to economy’s payment system. Since, the operation of universal banks connects closely to the financial and stock markets that are very fluctuate in a short term.

To win in the tight competition among financial institutions, banks have to alter their maneuver to lead in the market. Universal bank could be the wise choice for the bank manager, because they can attract more customers with a wide range of services. Furthermore, by altering their operation to the universal banking system, banks would get benefits from the efficiency and economies of scale.

In order to understand about the universal banking practices, this paper would examine the exclusive matters, which related to the risks and benefits in a universal bank. Moreover, this paper would also focus the whole impact of this institution to the financial system and the economy as a whole.

1.2 PROFITS AND COSTS IN UNIVERSAL BANKING: IMPLICATIONS FOR INDIVIDUAL BANKS

General problem related to financial intermediation, include universal banks and another type of banks, is about asymmetric information . It is the main problem that causes costs to increase and influence the performance of financial institutions. In Universal banks, the problems that would increase are slightly different with specialized banks; they are similar in that they should cope the risks problem associated with their financial position. Although, in universal banks, the risks are more bigger due to the wide range of financial instruments that they organized. Therefore, banks have to increase their spending on monitoring costs that are more complicated than specialized institutions or conventional banks.

Possible answer why more banks sacrifice to the escalating risks and transform it operation into the universal banking is that they want to compete and expand their market share, in order to seek a greater opportunity profits by serving more choices to their customers. Many banks has experienced a great performance after they alter their operation, the main concerns are that they could reach better economies of scale which can reduce the amount of spending in operational costs and also a greater opportunity to get more profits. The research finding which was conducted by Vender, R. (2002, cited in Cheang, 2004) about the efficiency of revenue in financial conglomerates and the level of both profit and cost in universal banking, has proved that both financial conglomerates and universal banking contain good performance in several indicators of bank profitability. His finding also suggests that the sustained expansion of financial conglomerates and universal banking practices may increase efficiency in the financial system.

This opinion is strengthen by another experts, like : George Rich and Christian Walter (1993). They state that universal banks which posse benefits over specialized institutions, are able to take advantage of reduction in the average cost of production and scope in banking. It is essential for banks that operate on a international level and in order to fulfill customer needs with a variety of financial services. They also mention a classic example how universal banks in some countries, such as : Switzerland, Germany and more European countries has experienced benefits by operating universal banking. In addition, they also state that the fear if universal bank would threaten specialized institutions has not proven. In Switzerland and Germany, for example, specialized institutions could achieve a better improvement in terms of cooperating with big banks. Universal banks are one of potential market channel which can sell their products directly to the customers, so specialized institutions also get additional return due to the increases in the number of universal banks. Therefore, this proves that universal banks do not threat other institutions; in fact, they support specialized institutions to market their products.

According to Fohlin, universal banking would lead to a bank’s concentration due to the increases the number of branch. Based on Germany’s experience, such branching-based expansion has led to the efficiency in banking because it could increase economies of scale in advertising and marketing, and open an enormous opportunity to enhance diversification and steadiness for banks.

A universal bank has unique position to tackle asymmetric information. As stated by Joao A. C. Santos (1998), that a universal bank has potential benefits on the reduction of agency cost and acquires profits due to information advantages. Although in other sides, universal banking also face problems related to the cost, conflict of interest and safety and soundness. But the default risk, which is generally happened in financial intermediation, would decrease substantially because universal banks are easier to control over their customers. Most of lenders in universal banks are their customers, so they can understand about the capacity of the customers from the information that they gather.

Nicholas Cheang (2004) also points out how universal banks could reduce a crucial problem in financial institution, asymmetric information. He argued that they could preserve a close relationship with their borrowers, by gathering more relevant information to make an important decision for investment. Their advantageous positions also vital to optimize the distribution of fund allocation, because banks have already known which investment that would give more margins to them. So, they don’t need to worry too much about the risk.

1.3 UNIVERSAL BANKS AND THE STABILITY IN THE FINANCIAL SYSTEM

Financial institution plays a vital role in terms of mobilizing funds in the economy. Consequently, stability in financial system is really important to manage by government in order to prevent wider implications to the real sectors. Financial disasters which happened in most countries in Asia in 1997 are the classic examples how importance to save banks to recover the economy.

As the financial supermarkets, which are handling a variety of financial instruments, they must face a greater risk than specialized institutions. As a consequence, this institution needs to be monitored closely in order to prevent more implications to the economy. According to Benston (1994), the escalating risks in universal banking would lead to a great problem because it can cause generous distress in the financial system. Hence, it will greatly increase the risk to the economy’s payment system. In another term, Rime and Strioh (2001) who examine the financial system in Switzerland in which universal banking are becoming more important in this country, state that difficulty in monitoring large universal banks is a major concern. This is the reason why universal bank has to spend more money in monitoring cost and develop an advanced system in information technology. In other words, it could say that the consequence of inefficient monitoring could lead to financial instability. (Cheang, 2004)

A wider range of universal banks in financial system makes the fund channels of banks to the customer are larger than specialized institutions. So, the economy will improve because universal banks will support more funding. This can be seen by the fact that a universal bank practice in Germany has triggered the progress of some enterprises performance in this country. (Stiglitz, 1985). It is understandable that when the allocation of fund can distribute widely and effectively to the potential enterprises, the economy will improve. In this context, universal banks have played as the key institution which mobilize fund to the potential lender.

Edwards (1996), has also proved that a universal bank is not just significantly contributed to economy from the external funds that they provide, but also from the improvement of the information flows. (cited in Cheang, 2004) Therefore, this proves that universal banks have played a significant role in terms of reducing the default risk by providing important information about the lender or customers. Furthermore, the safety of the financial system would be improved by the existence of universal banks.

1.4 CONCLUSION

The development of universal banks has to in line with the policy direction of central bank, because it is important to keep the stability of financial system and the economy as whole. There are three important areas that must be concerned related to universal bank operations, such as : the strengthened of capital and advanced risk management system. Consequently, in order to manage universal bank, people need to be aware about the unique of the risk type in universal banking. Furthermore, policy maker must also consider about the implication of universal banks in financial system.

Article Source: http://EzineArticles.com/?expert=Dias_Satria

More often than not, we make decisions impulsively, without dwelling on too much thought about what we want and without considering other options, guidelines and criteria to base our decisions with. We can always get away with this on small decisions such as deciding on the flavor of Starbucks coffee we want; whether this is decaf or not; medium or large; with cream or without and many other trivial options.

This is okay but this is not applicable when we are considering things that concern the financial aspect of our lives – financing, refinancing, mortgages, insurance, investments and yes, even choosing the bank where we could save and store our money. Here are some guidelines you have to consider when you want to invest portions of your money into banks:

1. Location. When choosing banks, you have to consider their locations. If you see yourself visiting your bank or banks in a regular basis, then the best option would be to look for banks nearest to wherever you conduct your business or in your home.

2. Accessibility of ATM Machines. Choose banks where a sufficient number of their ATM machines are accessible to you.

3. In relation to number 2, check the functionalities offered by the ATM machines of these banks. Check if it has the following features: – Do the banks’ ATM machines allow deposits to be made in it? – Do the banks’ ATM machines printout statements about your accounts such as your available balance, etc.? – Do the banks’ ATM machines enable a client to order a check book?

4. Telephone Banking. If you are one of those people who cannot go to banks during banking hours, then one of the features you have to look for in banks is the availability of telephone banking service. With this, you can make queries and transactions in your banks anytime, anywhere usually 24/7 all year. Telephone Banking allows you to do some of these transactions in your banks: – Transfer your money from your accounts in your banks to pay your bills – Telephone banking in banks enables cancellation and change of current orders – Check the balance of your account – Telephone banking in banks allows you to apply for other products or services from banks

5. Internet Banking. Internet banking features in banks also allows the following services offered by Telephone Banking wherein transactions and inquiries can be done via the Internet through the Internet portals of these banks.

If you are a business person and you need a bank or banks for your small business, here are some other aspects and guidelines you have to consider when choosing the right bank/banks for you:

1. Aside from the first general consideration on the location of the banks, you have to consider if the banks understand the nature of the business you are involved in.

2. Consider also if some of the banks will be able to allow you to deal with the senior employees/executives in the bank. This way, problems concerning your business banking needs will be addressed easily.

3. Check banks that offer SBA – Small Business Administration – Loans. This can help you should different needs arise in your business that will compel you to make a loan.

4. It is good to consider banks where the capitalization rate is greater than six percent. This will ensure you that the banks you will be working with will still be present while you are still in business

5. Consider the competitiveness of the banks by checking how much they charge for every transaction you make.

6. Aside from these, check also the competitiveness of the interests and other fees that come with their credit cards.

7. Check the stipulations on balances for checking accounts that bear interests.

8. Check if the banks you are considering are members of the FDIC – Federal Deposit Insurance Corporation and the Federal Reserve Bank and lastly,

9. Look for banks that are capable of giving service that you and your business might need ahead of time.

Keep all these in mind when considering the right bank/banks and surely, you will never go wrong. Good luck!

Article Source: http://EzineArticles.com/?expert=David_Arnold_Livingston

Banks are institutions wherein miracles happen regularly. We rarely entrust our money to anyone but ourselves – and our banks. Despite a very chequered history of mismanagement, corruption, false promises and representations, delusions and behavioural inconsistency – banks still succeed to motivate us to give them our money. Partly it is the feeling that there is safety in numbers. The fashionable term today is “moral hazard”. The implicit guarantees of the state and of other financial institutions moves us to take risks which we would, otherwise, have avoided. Partly it is the sophistication of the banks in marketing and promoting themselves and their products. Glossy brochures, professional computer and video presentations and vast, shrine-like, real estate complexes all serve to enhance the image of the banks as the temples of the new religion of money.

But what is behind all this? How can we judge the soundness of our banks? In other words, how can we tell if our money is safely tucked away in a safe haven?

The reflex is to go to the bank’s balance sheets. Banks and balance sheets have been both invented in their modern form in the 15th century. A balance sheet, coupled with other financial statements is supposed to provide us with a true and full picture of the health of the bank, its past and its long-term prospects. The surprising thing is that – despite common opinion – it does. The less surprising element is that it is rather useless unless you know how to read it.

Financial Statements (Income – aka Profit and Loss – Statement, Cash Flow Statement and Balance Sheet) come in many forms. Sometimes they conform to Western accounting standards (the Generally Accepted Accounting Principles, GAAP, or the less rigorous and more fuzzily worded International Accounting Standards, IAS). Otherwise, they conform to local accounting standards, which often leave a lot to be desired. Still, you should look for banks, which make their updated financial reports available to you. The best choice would be a bank that is audited by one of the Big Six Western accounting firms and makes its audit reports publicly available. Such audited financial statements should consolidate the financial results of the bank with the financial results of its subsidiaries or associated companies. A lot often hides in those corners of corporate ownership.

Banks are rated by independent agencies. The most famous and most reliable of the lot is Fitch-IBCA. Another one is Thomson BankWatch-BREE. These agencies assign letter and number combinations to the banks, that reflect their stability. Most agencies differentiate the short term from the long term prospects of the banking institution rated. Some of them even study (and rate) issues, such as the legality of the operations of the bank (legal rating). Ostensibly, all a concerned person has to do, therefore, is to step up to the bank manager, muster courage and ask for the bank’s rating. Unfortunately, life is more complicated than rating agencies would like us to believe. They base themselves mostly on the financial results of the bank rated, as a reliable gauge of its financial strength or financial profile. Nothing is further from the truth.

Admittedly, the financial results do contain a few important facts. But one has to look beyond the naked figures to get the real – often much less encouraging – picture.

Consider the thorny issue of exchange rates. Financial statements are calculated (sometimes stated in USD in addition to the local currency) using the exchange rate prevailing on the 31st of December of the fiscal year (to which the statements refer). In a country with a volatile domestic currency this would tend to completely distort the true picture. This is especially true if a big chunk of the activity preceded this arbitrary date. The same applies to financial statements, which were not inflation-adjusted in high inflation countries. The statements will look inflated and even reflect profits where heavy losses were incurred. “Average amounts” accounting (which makes use of average exchange rates throughout the year) is even more misleading. The only way to truly reflect reality is if the bank were to keep two sets of accounts: one in the local currency and one in USD (or in some other currency of reference). Otherwise, fictitious growth in the asset base (due to inflation or currency fluctuations) could result.

Another example: in many countries, changes in regulations can greatly effect the financial statements of a bank. In 1996, in Russia, to take an example, the Bank of Russia changed the algorithm for calculating an important banking ratio (the capital to risk weighted assets ratio). Unless a Russian bank restated its previous financial statements accordingly, a sharp change in profitability appeared from nowhere.

The net assets themselves are always misstated: the figure refers to the situation on 31/12. A 48-hour loan given to a collaborating firm can inflate the asset base on the crucial date. This misrepresentation is only mildly ameliorated by the introduction of an “average assets” calculus. Moreover, some of the assets can be interest earning and performing – others, non-performing. The maturity distribution of the assets is also of prime importance. If most of the bank’s assets can be withdrawn by its clients on a very short notice (on demand) – it can swiftly find itself in trouble with a run on its assets leading to insolvency.

Another oft-used figure is the net income of the bank. It is important to distinguish interest income from non-interest income. In an open, sophisticated credit market, the income from interest differentials should be minimal and reflect the risk plus a reasonable component of income to the bank. But in many countries (Japan, Russia) the government subsidizes banks by lending to them money cheaply (through the Central Bank or through bonds). The banks then proceed to lend the cheap funds at exorbitant rates to their customers, thus reaping enormous interest income. In many countries the income from government securities is tax free, which represents another form of subsidy. A high income from interest is a sign of weakness, not of health, here today, there tomorrow. The preferred indicator should be income from operations (fees, commissions and other charges).

There are a few key ratios to observe. A relevant question is whether the bank is accredited with international banking agencies. The latter issue regulatory capital requirements and other defined ratios. Compliance with these demands is a minimum in the absence of which, the bank should be regarded as positively dangerous.

The return on the bank’s equity (ROE) is the net income divided by its average equity. The return on the bank’s assets (ROA) is its net income divided by its average assets. The (tier 1 or total) capital divided by the bank’s risk weighted assets – a measure of the bank’s capital adequacy. Most banks follow the provisions of the Basel Accord as set by the Basel Committee of Bank Supervision (also known as the G10). This could be misleading because the Accord is ill equipped to deal with risks associated with emerging markets, where default rates of 33% and more are the norm. Finally, there is the common stock to total assets ratio. But ratios are not cure-alls. Inasmuch as the quantities that comprise them can be toyed with – they can be subject to manipulation and distortion. It is true that it is better to have high ratios than low ones. High ratios are indicative of a bank’s underlying strength of reserves and provisions and, thereby, of its ability to expand its business. A strong bank can also participate in various programs, offerings and auctions of the Central Bank or of the Ministry of Finance. The more of the bank’s earnings are retained in the bank and not distributed as profits to its shareholders – the better these ratios and the bank’s resilience to credit risks. Still, these ratios should be taken with more than a grain of salt. Not even the bank’s profit margin (the ratio of net income to total income) or its asset utilization coefficient (the ratio of income to average assets) should be relied upon. They could be the result of hidden subsidies by the government and management misjudgement or understatement of credit risks.

To elaborate on the last two points: a bank can borrow cheap money from the Central Bank (or pay low interest to its depositors and savers) and invest it in secure government bonds, earning a much higher interest income from the bonds’ coupon payments. The end result: a rise in the bank’s income and profitability due to a non-productive, non-lasting arbitrage operation. Otherwise, the bank’s management can understate the amounts of bad loans carried on the bank’s books, thus decreasing the necessary set-asides and increasing profitability. The financial statements of banks largely reflect the management’s appraisal of the business. This is a poor guide to go by.

In the main financial results’ page of a bank’s books, special attention should be paid to provisions for the devaluation of securities and to the unrealized difference in the currency position. This is especially true if the bank is holding a major part of the assets (in the form of financial investments or of loans) and the equity is invested in securities or in foreign exchange denominated instruments. Separately, a bank can be trading for its own position (the Nostro), either as a market maker or as a trader. The profit (or loss) on securities trading has to be discounted because it is conjectural and incidental to the bank’s main activities: deposit taking and loan making.

Most banks deposit some of their assets with other banks. This is normally considered to be a way of spreading the risk. But in highly volatile economies with sickly, underdeveloped financial sectors, all the institutions in the sector are likely to move in tandem (a highly correlated market). Cross deposits among banks only serve to increase the risk of the depositing bank (as the recent affair with Toko Bank in Russia and the banking crisis in South Korea have demonstrated).

Further closer to the bottom line are the bank’s operating expenses: salaries, depreciation, fixed or capital assets (real estate and equipment) and administrative expenses. The rule of thumb is: the higher these expenses, the worse. The great historian Toynbee once said that great civilizations collapse immediately after they bequeath to us the most impressive buildings. This is doubly true with banks. If you see a bank fervently engaged in the construction of palatial branches – stay away from it.

All considered, banks are risk traders. They live off the mismatch between assets and liabilities. To the best of their ability, they try to second guess the markets and reduce such a mismatch by assuming part of the risks and by engaging in proper portfolio management. For this they charge fees and commissions, interest and profits – which constitute their sources of income. If any expertise is attributed to the banking system, it is risk management. Banks are supposed to adequately assess, control and minimize credit risks. They are required to implement credit rating mechanisms (credit analysis), efficient and exclusive information-gathering systems, and to put in place the right lending policies and procedures. Just in case they misread the market risks and these turned into credit risks (which happens only too often), banks are supposed to put aside amounts of money which could realistically offset loans gone sour or non-performing in the future. These are the loan loss reserves and provisions. Loans are supposed to be constantly monitored, reclassified and charges must be made against them as applicable. If you see a bank with zero reclassifications, charge off and recoveries – either the bank is lying through its teeth, or it is not taking the business of banking too seriously, or its management is no less than divine in its prescience. What is important to look at is the rate of provision for loan losses as a percentage of the loans outstanding. Then it should be compared to the percentage of non-performing loans out of the loans outstanding. If the two figures are out of kilter, either someone is pulling your leg – or the management is incompetent or lying to you. The first thing new owners of a bank do is, usually, improve the placed asset quality (a polite way of saying that they get rid of bad, non-performing loans, whether declared as such or not). They do this by classifying the loans. Most central banks in the world have in place regulations for loan classification and if acted upon, these yield rather more reliable results than any management’s “appraisal”, no matter how well intentioned. In some countries in the world, the Central Bank (or the Supervision of the Banks) forces banks to set aside provisions against loans of the highest risk categories, even if they are performing. This, by far, should be the preferable method.

Of the two sides of the balance sheet, the assets side should earn the most attention. Within it, the interest earning assets deserve the greatest dedication of time. What percentage of the loans is commercial and what percentage given to individuals? How many lenders are there (risk diversification is inversely proportional to exposure to single borrowers)? How many of the transactions are with “related parties”? How much is in local currency and how much in foreign currencies (and in which)? A large exposure to foreign currency lending is not necessarily healthy. A sharp, unexpected devaluation could move a lot of the borrowers into non-performance and default and, thus, adversely affect the quality of the asset base. In which financial vehicles and instruments is the bank invested? How risky are they? And so on.

No less important is the maturity structure of the assets. It is an integral part of the liquidity (risk) management of the bank. The crucial question is: what are the cash flows projected from the maturity dates of the different assets and liabilities – and how likely are they to materialize. A rough matching has to exist between the various maturities of the assets and the liabilities. The cash flows generated by the assets of the bank must be used to finance the cash flows resulting from the banks’ liabilities. A distinction has to be made between stable and hot funds (the latter in constant pursuit of higher yields). Liquidity indicators and alerts have to be set in place and calculated a few times daily. Gaps (especially in the short term category) between the bank’s assets and its liabilities are a very worrisome sign.

But the bank’s macroeconomic environment is as important to the determination of its financial health and of its creditworthiness as any ratio or micro-analysis. The state of the financial markets sometimes has a larger bearing on the bank’s soundness than other factors. A fine example is the effect that interest rates or a devaluation have on a bank’s profitability and capitalization. The implied (not to mention the explicit) support of the authorities, of other banks and of investors (domestic as well as international) sets the psychological background to any future developments. This is only too logical. In an unstable financial environment, knock-on effects are more likely. Banks deposit money with other banks on a security basis. Still, the value of securities and collaterals is as good as their liquidity and as the market itself. The very ability to do business (for instance, in the syndicated loan market) is influenced by the larger picture. Falling equity markets herald trading losses and loss of income from trading operations and so on.

Perhaps the single most important factor is the general level of interest rates in the economy. It determines the present value of foreign exchange and local currency denominated government debt. It influences the balance between realized and unrealized losses on longer-term (commercial or other) paper. One of the most important liquidity generation instruments is the repurchase agreement (repo). Banks sell their portfolios of government debt with an obligation to buy it back at a later date. If interest rates shoot up – the losses on these repos can trigger margin calls (demands to immediately pay the losses or else materialize them by buying the securities back). Margin calls are a drain on liquidity. Thus, in an environment of rising interest rates, repos could absorb liquidity from the banks, deflate rather than inflate. The same principle applies to leverage investment vehicles used by the bank to improve the returns of its securities trading operations. High interest rates here can have an even more painful outcome. As liquidity is crunched, the banks are forced to materialize their trading losses. This is bound to put added pressure on the prices of financial assets, trigger more margin calls and squeeze liquidity further. It is a vicious circle of a monstrous momentum once commenced.

But high interest rates, as we mentioned, also strain the asset side of the balance sheet by applying pressure to borrowers. The same goes for a devaluation. Liabilities connected to foreign exchange grow with a devaluation with no (immediate) corresponding increase in local prices to compensate the borrower. Market risk is thus rapidly transformed to credit risk. Borrowers default on their obligations. Loan loss provisions need to be increased, eating into the bank’s liquidity (and profitability) even further. Banks are then tempted to play with their reserve coverage levels in order to increase their reported profits and this, in turn, raises a real concern regarding the adequacy of the levels of loan loss reserves. Only an increase in the equity base can then assuage the (justified) fears of the market but such an increase can come only through foreign investment, in most cases. And foreign investment is usually a last resort, pariah, solution (see Southeast Asia and the Czech Republic for fresh examples in an endless supply of them. Japan and China are, probably, next).

In the past, the thinking was that some of the risk could be ameliorated by hedging in forward markets (=by selling it to willing risk buyers). But a hedge is only as good as the counterparty that provides it and in a market besieged by knock-on insolvencies, the comfort is dubious. In most emerging markets, for instance, there are no natural sellers of foreign exchange (companies prefer to hoard the stuff). So forwards are considered to be a variety of gambling with a default in case of substantial losses a very plausible way out.

Banks depend on lending for their survival. The lending base, in turn, depends on the quality of lending opportunities. In high-risk markets, this depends on the possibility of connected lending and on the quality of the collaterals offered by the borrowers. Whether the borrowers have qualitative collaterals to offer is a direct outcome of the liquidity of the market and on how they use the proceeds of the lending. These two elements are intimately linked with the banking system. Hence the penultimate vicious circle: where no functioning and professional banking system exists – no good borrowers will emerge.

Central banks are relatively new inventions. An American President (Andrew Jackson) even cancelled its country’s central bank in the nineteenth century because he did not think that it was very important. But things have changed since. Central banks today are the most important feature of the financial systems of most countries of the world.

Central banks are a bizarre hybrids. Some of their functions are identical to the functions of regular, commercial banks. Other functions are unique to the central bank. On certain functions it has an absolute legal monopoly.

Central banks take deposits from other banks and, in certain cases, from foreign governments which deposit their foreign exchange and gold reserves for safekeeping (for instance, with the Federal Reserve Bank of the USA). The Central Bank invests the foreign exchange reserves of the country while trying to maintain an investment portfolio similar to the trade composition of its client – the state. The Central bank also holds onto the gold reserves of the country. Most central banks have lately tried to get rid of their gold, due to its ever declining prices. Since the gold is registered in their books in historical values, central banks are showing a handsome profit on this line of activity. Central banks (especially the American one) also participate in important, international negotiations. If they do not do so directly – they exert influence behind the scenes. The German Bundesbank virtually dictated Germany’s position in the negotiations leading to the Maastricht treaty. It forced the hands of its co-signatories to agree to strict terms of accession into the Euro single currency project. The Bunbdesbank demanded that a country’s economy be totally stable (low debt ratios, low inflation) before it is accepted as part of the Euro. It is an irony of history that Germany itself is not eligible under these criteria and cannot be accepted as a member in the club whose rules it has assisted to formulate.

But all these constitute a secondary and marginal portion of a central banks activities.

The main function of a modern central bank is the monitoring and regulation of interest rates in the economy. The central bank does this by changing the interest rates that it charges on money that it lends to the banking system through its “discount windows”. Interest rates is supposed to influence the level of economic activity in the economy. This supposed link has not unequivocally proven by economic research. Also, there usually is a delay between the alteration of interest rates and the foreseen impact on the economy. This makes assessment of the interest rate policy difficult. Still, central banks use interest rates to fine tune the economy. Higher interest rates – lower economic activity and lower inflation. The reverse is also supposed to be true. Even shifts of a quarter of a percentage point are sufficient to send the stock exchanges tumbling together with the bond markets. In 1994 a long term trend of increase in interest rate commenced in the USA, doubling interest rates from 3 to 6 percent. Investors in the bond markets lost 1 trillion (=1000 billion!) USD in 1 year. Even today, currency traders all around the world dread the decisions of the Bundesbank and sit with their eyes glued to the trading screen on days in which announcements are expected.

Interest rates is only the latest fad. Prior to this – and under the influence of the Chicago school of economics – central banks used to monitor and manipulate money supply aggregates. Simply put, they would sell bonds to the public (and, thus absorb liquid means, money) – or buy from the public (and, thus, inject liquidity). Otherwise, they would restrict the amount of printed money and limit the government’s ability to borrow. Even prior to that fashion there was a widespread belief in the effectiveness of manipulating exchange rates. This was especially true where exchange controls were still being implemented and the currency was not fully convertible. Britain removed its exchange controls only as late as 1979. The USD was pegged to a (gold) standard (and, thus not really freely tradable) as late as 1971. Free flows of currencies are a relatively new thing and their long absence reflects this wide held superstition of central banks. Nowadays, exchange rates are considered to be a “soft” monetary instrument and are rarely used by central banks. The latter continue, though, to intervene in the trading of currencies in the international and domestic markets usually to no avail and while losing their credibility in the process. Ever since the ignominious failure in implementing the infamous Louvre accord in 1985 currency intervention is considered to be a somewhat rusty relic of old ways of thinking.

Central banks are heavily enmeshed in the very fabric of the commercial banking system. They perform certain indispensable services for the latter. In most countries, interbank payments pass through the central bank or through a clearing organ which is somehow linked or reports to the central bank. All major foreign exchange transactions pass through – and, in many countries, still must be approved by – the central bank. Central banks regulate banks, licence their owners, supervise their operations, keenly observes their liquidity. The central bank is the lender of last resort in cases of insolvency or illiquidity.

The frequent claims of central banks all over the world that they were surprised by a banking crisis looks, therefore, dubious at best. No central bank can say that it had no early warning signs, or no access to all the data – and keep a straight face while saying so. Impending banking crises give out signs long before they erupt. These signs ought to be detected by a reasonably managed central bank. Only major neglect could explain a surprise on behalf of a central bank.

One sure sign is the number of times that a bank chooses to borrow using the discount windows. Another is if it offers interest rates which are way above the rates offered by other financing institutions. There are may more signs and central banks should be adept at reading them.

This heavy involvement is not limited to the collection and analysis of data. A central bank – by the very definition of its functions – sets the tone to all other banks in the economy. By altering its policies (for instance: by changing its reserve requirements) it can push banks to insolvency or create bubble economies which are bound to burst. If it were not for the easy and cheap money provided by the Bank of Japan in the eighties – the stock and real estate markets would not have inflated to the extent that they have. Subsequently, it was the same bank (under a different Governor) that tightened the reins of credit – and pierced both bubble markets.

The same mistake was repeated in 1992-3 in Israel – and with the same consequences.

This precisely is why central banks, in my view, should not supervise the banking system.

When asked to supervise the banking system – central banks are really asked to draw criticism on their past performance, their policies and their vigilance in the past. Let me explain this statement:

In most countries in the world, bank supervision is a heavy-weight department within the central bank. It samples banks, on a periodic basis. Then, it analyses their books thoroughly and imposes rules of conduct and sanctions where necessary. But the role of central banks in determining the health, behaviour and operational modes of commercial banks is so paramount that it is highly undesirable for a central bank to supervise the banks. As I have said, supervision by a central bank means that it has to criticize itself, its own policies and the way that they were enforced and also the results of past supervision. Central banks are really asked to cast themselves in the unlikely role of impartial saints.

A new trend is to put the supervision of banks under a different “sponsor” and to encourage a checks and balances system, wherein the central bank, its policies and operations are indirectly criticized by the bank supervision. This is the way it is in Switzerland and – with the exception of the Jewish money which was deposited in Switzerland never to be returned to its owners – the Swiss banking system is extremely well regulated and well supervised.

We differentiate between two types of central bank: the autonomous and the semi-autonomous.

The autonomous bank is politically and financially independent. Its Governor is appointed for a period which is longer than the periods of the incumbent elected politicians, so that he will not be subject to political pressures. Its budget is not provided by the legislature or by the executive arm. It is self sustaining: it runs itself as a corporation would. Its profits are used in leaner years in which it loses money (though for a central bank to lose money is a difficult task to achieve).

In Macedonia, for instance, annual surpluses generated by the central bank are transferred to the national budget and cannot be utilized by the bank for its own operations or for the betterment of its staff through education.

Prime examples of autonomous central banks are Germany’s Bundesbank and the American Federal Reserve Bank.

The second type of central bank is the semi autonomous one. This is a central bank that depends on the political echelons and, especially, on the Ministry of Finance. This dependence could be through its budget which is allocated to it by the Ministry or by a Parliament (ruled by one big party or by the coalition parties). The upper levels of the bank – the Governor and the Vice Governor – could be deposed of through a political decision (albeit by Parliament, which makes it somewhat more difficult). This is the case of the National Bank of Macedonia which has to report to Parliament. Such dependent banks fulfil the function of an economic advisor to the government. The Governor of the Bank of England advises the Minister of Finance (in their famous weekly meetings, the minutes of which are published) about the desirable level of interest rates. It cannot, however, determine these levels and, thus is devoid of arguably the most important policy tool. The situation is somewhat better with the Bank of Israel which can play around with interest rates and foreign exchange rates – but not entirely freely.

The National Bank of Macedonia (NBM) is highly autonomous under the law regulating its structure and its activities. Its Governor is selected for a period of seven years and can be removed from office only in the case that he is charged with criminal deeds. Still, it is very much subject to political pressures. High ranking political figures freely admit to exerting pressures on the central bank (at the same breath saying that it is completely independent).

The NBM is young and most of its staff – however bright – are inexperienced. With the kind of wages that it pays it cannot attract the best available talents. The budgetary surpluses that it generates could have been used for this purpose and to higher world renowned consultants (from Switzerland, for instance) to help the bank overcome the experience gap. But the money is transferred to the budget, as we said. So, the bank had to do with charity received from USAID, the KNOW-HOW FUND and so on. Some of the help thus provided was good and relevant – other advice was, in my view, wrong for the local circumstances. Take supervision: it was modelled after the Americans and British. Those are the worst supervisors in the West (if we do not consider the Japanese).

And with all this, the bank had to cope with extraordinarily difficult circumstances since its very inception. The 1993 banking crisis, the frozen currency accounts, the collapse of the Stedilnicas (crowned by the TAT affair). Older, more experienced central banks would have folded under the pressure. Taking everything under consideration, the NBM has performed remarkably well.

The proof is in the stability of the local currency, the Denar. This is the main function of a central bank. After the TAT affair, there was a moment or two of panic – and then the street voted confidence in the management of the central bank, the Denar-DM rate went down to where it was prior to the crisis.

Now, the central bank is facing its most daunting task: facing the truth without fear and without prejudice. Bank supervision needs to be overhauled and lessons need to be learnt. The political independence of the bank needs to be increased greatly. The bank must decide what to do with TAT and with the other failing Stedilnicas?

They could be sold to the banks as portfolios of assets and liabilities. The Bank of England sold Barings Bank in 1995 to the ING Dutch Bank.

The central bank could – and has to – force the owners of the failing Stedilnicas to increase their equity capital (by using their personal property, where necessary). This was successfully done (again, by the Bank of England) in the 1991 case of the BCCI scandal.

The State of Macedonia could decide to take over the obligations of the failed system and somehow pay back the depositors. Israel (1983), the USA (1985/7) and a dozen other countries have done so recently.

The central bank could increase the reserve requirements and the deposit insurance premiums.

But these are all artificial, ad hoc, solutions. Something more radical needs to be done:

A total restructuring of the banking system. The Stedilnicas have to be abolished. The capital required to open a bank or a branch of a bank has to be lowered to 4 million DM (to conform with world standards and with the size of the economy of Macedonia). Banks should be allowed to diversify their activities (as long as they are of a financial nature), to form joint venture with other providers of financial services (such as insurance companies) and to open a thick network of branches.

And bank supervision must be separated from the central bank and set to criticize the central bank and its policies, decisions and operations on a regular basis.

There are no reasons why Macedonia should not become a financial centre of the Balkans – and there are many reasons why it should. But, ultimately, it all depends on the Macedonians themselves.

Introduction – What we are going to do is describe the legal and mechanical process relating to offshore bank failures. We will discuss what leads up to them, what happens if they fail, and how do the depositors get their money back. The terms and scenarios we depict are generally what happens in the world of offshore banking. In some jurisdictions the terminology and procedures may be slightly different but the general way things proceed will be in line with the scenarios depicted in this article.

Offshore Banks – A brief definition of this term is in order. These are banks that are located in various countries around the world many being in Caribbean Island Nations. These banks have a license that enables them to only do business with people and entities (trusts and corporations) that are not from that country. The offshore jurisdiction does not trust the offshore bank to accept deposits from its citizens or corporation filed in that country. This right away should tell a moderately astute investor that he or she is perhaps not exercising the correct amount of caution when it comes to selecting a bank and an offshore jurisdiction. So the first warning sign is be careful of offshore banking licenses. A bank can be in an offshore jurisdiction and not have an offshore banking license, instead be a regularly licensed bank. Offshore bank licenses can be had in some jurisdictions with as little as a $50,000 deposit with the country issuing the license. Usually this amount is never more than $500,000 and many countries require less. As a point of comparison a regular bank operating in Panama is required to post $10,000,000 cash deposit and the owners go through a rigorous background investigation.

Bank Failure – This is a term relating to the offshore bank being unable to fulfill the demand for funds from their depositors. This can occur for a number of reasons, some bad and some not so bad. The offshore bank may have been found to be below its protective ratios and the government bank auditors or financial ministry may decide to shut the bank down in terms of money going out for a limited period of time to see if the bank can return their ratios quickly to an acceptable level. In the event the ratios return to an acceptable level the bank operation resumes normally and the depositors may not even know anything occurred.

Complaints – The way offshore bank failures generally start is with complaints to the licensing authority of the country where the bank is located stating that requests to withdraw funds are not being met by the bank. To document this the account holder generally retains legal counsel in the country where the offshore bank is located and files a formal demand for the funds to bank with a very short deadline. When this demand is not met the law firm will file a formal complaint to the offshore bank licensing authority who will generally conduct an investigation. They may have their own auditors or hire an independent team of auditors to go through the offshore bank records. They will look to see if there are any loans on the books that do not meet the guidelines for lending such as writing uncollateralized loans is usually considered an offense. Loans to the principals of the bank are another red flag. Real estate acquisitions like mansions on the island where the offshore bank is located for the bank executives to live in is another red flag as well. Usually without loans the bank would not fail to meet its ratios. When these loans go bad and there is no collateral to go after then the banks get into trouble. The complaint process is possibly the only way the government is going to know their offshore bank is in trouble and by then it may be too late, but it may not be too late. Remember we are talking about offshore banks here, not regularly licensed regular banks which are audited and watched way more closely by the government and usually by a different government agency than the agency supervising offshore banks. We as a Panama Law firm do not introduce clients to offshore banks which should tell you something.

Loss of Correspondent Bank – Sometimes the offshore bank has just lost one or more of its correspondent banks and can not execute wire transfers until it replaces the correspondent with another correspondent bank which may take several weeks. When the complaints hit the government they will investigate, see that the funds are in place and allow the offshore bank a reasonable period of time to secure another correspondent bank, checking with them for progress reports. This is a not so bad problem that will only serve to scare and inconvenience the depositors.

Offshore Bank Receivership – This is a process whereby the government agency that licenses the offshore bank takes over the offshore bank to control its operation with an eye towards saving the bank. Sometimes they are successful and well sometimes not. Often a team of professionals from a large auditing or accounting firm are brought in. Receivership practices can frequently mean that a percentage of your funds will be unavailable for withdrawal for sometime. This is to prevent a run on the offshore bank which would for sure topple it and thus cost the depositors substantial losses. You may be only able to take out say 25% of your funds. What can often happen is the depositors lose faith and take as much money out as they can and avoid putting in any more money. This usually results in the offshore bank failing totally and being shut down.

Suing the Offshore Bank – What often happens in these offshore bank receivership scenarios is some depositors get scared and act jumpy and sue the bank. The lawsuits generally involve having the court encumber or tie up an amount equal to their deposit. To accomplish this the depositors generally have to resort to deceit or twisting the truth minimally, to make the court think they were not ordinary depositors or the amount in question consisted of funds to be handled in a special exceptional manner. The way the depositors are playing their hand is get the court to hold my money before the bank goes down completely and then my funds get mixed in with all the depositors in the fracas. If one files such a lawsuit they are generally excluded from filing claims as regular creditors (depositors) of the bank in the event of a liquidation and if they lose their lawsuit (an expected occurrence if based on fraud or deceit) they can lose all. Usually several depositors will file such lawsuits if there is any official action taken against the offshore bank and this could push the offshore bank into greater difficulty and if there is a bank liquidation it will be a most complex one with a lot of depositors funds eaten up in legal fees.

Offshore Bank Liquidation – This is of course the sword of gloom in the world of offshore banking. For things to reach this level the government had to have felt that the offshore bank is not salvageable. Generally a bunch of depositors filing lawsuits and jamming up the court system of some island jurisdiction is going to encourage the government there to liquidate the offshore bank in hopes of freeing up their courts. Imagine an offshore tax haven island court system. A small building with one to three courtrooms and maybe three or four judges. These courts hear divorce, child custody, personal injury as in auto accidents, bankruptcy, collection cases, resident disputes with building contractors, traffic court cases, and criminal cases. The court is there to enable the island jurisdiction to function as an independent governing state. It is not going to jam up its courts increasing the wait times for its citizens that are trying to deal with vital matters like child custody where one of the parents is an abusive drunk hurting the children. When the offshore bank gets put into liquidation generally the court cases can be disposed of quickly or even by summary dismissal. The government knows that the people behind these lawsuits are trying to get more money than they would if they just waited for the liquidation to proceed and are not amused by their litigious behavior.

The Offshore Bank Liquidation Process – So now the bank is in liquidation. What does this mean? Basically a liquidator will be appointed to determine what assets the bank has, liquidate what can be profitably liquidated and then see how much money is left. The remaining money will be divided up amongst the depositors fairly depending on how much they had on deposit in the offshore bank. They will get a percentage of their deposit back. What would be a good return in a liquidation, 75%. What would be a bad return well there was a liquidation in Latvia a few years ago where the depositors got 2%. What is a typical return? There is no number but it should be 33% to 60% unless the bank has been really mismanaged.

The Offshore Bank Liquidator – This is generally a person with an accounting, legal or banking background. They can understand the books of the offshore bank and the laws pertaining to the offshore bank and the liquidation. If the offshore bank had secured loans that went bad (payments not be made according to written loan documents) they will analyze the worth of going after the collateral. If there was a farm in Argentina posted as collateral for a three million dollar loan he may order an appraisal of the farm to see if it really worth that much. If the value of the farm is more than the legal expense of securing and liquidating the asset the liquidator should go ahead and liquidate it. This process may take a year or longer. If a loan was made to a trucking company in Belgium for a fleet of trucks the same liquidation process may occur. This sort of liquidation may take even two or three years depending on what type of liquidation processes may need to be followed. The borrower may file bankruptcy making the liquidation of the secured assets difficult and time consuming in some countries. The bankruptcy court might let the borrower continue making payments and keep the asset which can make for a rather problematic liquidation because now the loan must be sold to reduce it to a net value. Generally such a loan is going to go for a deep discount at best. The liquidator may have to sell the banks real estate, computers, office equipment and furniture, cars, boats, planes etc. All this is time consuming and the assets should be sold at an auction to keep things fair avoiding accusations of selling under the market for kickbacks. There is an inherent conflict of interest in the liquidation process. The bank liquidator generally gets paid handsomely. Think perhaps $150 to $300 an hour or maybe $10,000 to $30,000 per month. It is in his best interest to keep things going for as long as possible. The lawyers the bank liquidator uses are also under this same conflict of interest. How honest and upright these people are going to be is something for which there is no rule but there is generally a control element in the form of a creditors committee. In an honest liquidation the liquidator may elect to distribute the readily available assets the offshore bank has right away. These assets would be the actual cash deposits. This is an encouraging sign to the creditors. Money would usually be held back to allow the liquidation to proceed further allowing for legal expenses etc. Then as real estate and other assets are sold further distributions would be made. Not all liquidations are done so directly.

The Ugly Side of Offshore Bank Liquidations – Sometimes the offshore bank assets are deposited by the liquidator in another bank. Whether or not this is in an interest bearing account is always a good question. If there is $12,000,000 in cash in a bank the interest at 4% a year is a serious amount of money that will tempt people. Legal fees can be padded and kickbacks made to the liquidator from the law firm located on the island jurisdiction the offshore bank is in. Some of these islands where these offshore banks are have less than 100,000 people living in the country. You are foreigners and don’t expect such honest treatment in these tourist island jurisdictions. They may view these offshore bank liquidations as a feast for the locals courtesy of all the rich foreigners. Excessive travel can be run up by the liquidator. He can travel abroad going first class all the way even bringing the lawyers along, all on the clock. The liquidator can reach crooked settlements with people who posted collateral for loans with the offshore bank. Depositors of the offshore bank can file lawsuits for special treatment and the liquidator can settle with them in a crooked manner for an illegal kickback and then they get all their back while you only get a fraction back. Real estate owned by the offshore bank can be sold under market value for a kickback to a friend or relative of the liquidator. Same can be done with cars, computers etc. The liquidator can elect to chase assets not worth chasing to continue his high paying job some years longer than it should require. Remember offshore bank liquidations do not come along every day and the liquidator has no idea where his next job is going to come from. There is a check and balance usually in the bank liquidation process which is described below.

Offshore Bank Liquidation Creditors Committee – A creditor of the offshore bank is generally a depositor but it could be the electric company or the phone company. Generally, the employees are considered priority creditors when it comes to their wages and they get paid off first and fast. The depositor is owed money by the offshore bank based on their deposits, thus he or she is a creditor as far as the offshore bank liquidation is concerned. An offshore bank liquidation is sort of like a bankruptcy proceeding. In an offshore bank liquidation a creditors committee is formed which is something done in many bankruptcy proceedings. The creditors committee could possibly have been formed before the liquidator came into office and they appoint the liquidator with or without the approval of the court, rules vary some depending on the offshore jurisdiction involved. The creditors committee generally is voted into existence by the creditors, the creditors with the most dollars on deposit having the most votes is one way to look at it. All creditors are generally not treated equal. The creditors committee members are all on the same side and that side is interested in getting as much money back as they can. Decisions as to how to spend money chasing assets or potential assets are usually made by the liquidator but the creditors committee can exert control over the liquidator even replacing the liquidator in extreme circumstances. Some bank liquidations have taken place without creditor committees in place. These are generally less than above board liquidations.

Creditor Claims in Offshore Bank Liquidations – When the liquidator is in office the depositors are generally required to file claims. The claims process involves filing identity documents with the liquidator and identifying your account and how much money was in it. Offshore bank liquidations are conducted in open court and these claims wind up as exhibits in the public domain. What I am saying is bank secrecy is not in place once the bank is in liquidation. What one can expect to see is a fair number of depositors failing to file claims because of various reasons often relating to bank secrecy. Of course this means a greater recovery for those who do file the claims while the other folks walk away with a total loss of their funds by choice.

What to do if you are in an Offshore Bank Liquidation – If you are already involved in a bank liquidation you made a mistake and you are going to get hurt. How badly hurt is the question so you should be trying to mitigate your damages. If a creditors committee is forming try to get involved actively, even try to sit on the committee. If the liquidator has not yet been appointed do get involved in that process. Try to find ways to meet other depositors. Call lawyers on the island and ask them to represent a group of creditors collectively. Rest assured other depositors will be calling lawyers on the island and the lawyer can be a contact point to form a creditors committee. The idea may not occur to a lot of these lawyers so help them out a bit. If you can get a creditors committee in place and have it appoint a liquidator you will probably have a honest liquidation, probably. That having been said one must still leave room for the offshore bank itself having been intrinsically dishonest and the bank owners have since ran away with the funds. When you read the offshore bank liquidation horror stories you see that the money trail goes from country to country, bank to bank and then it ends up with a large cash withdrawal which is usually the end of the trail. The offshore jurisdiction may fail to ever prosecute them or file charges which of course make one wonder what was going on. So the key here is to get involved actively. It is real important to open communications with other creditors and get organized.

How to Avoid Being in Offshore Bank Liquidations – The answer is of course simple, avoid offshore banks. Stick to banks with full banking licenses that can conduct banking business with the residents of the country as well as with entities not located in the country.

Offshore Bank Alternatives – The best alternative to these tax haven island offshore jurisdictions is Panama. Panama is a solid offshore tax haven jurisdiction that does not tax offshore derived income and has no capital gains tax or tax on stock market gains. Panama has fully anonymous bearer share corporations where the owners are not recorded in any registry or database. Panama has anonymous foundations which are able to have generally non-freezable bank accounts. Panama has no tax treaties with any country so fishing expeditions are not going to happen. Panama has the tightest bank secrecy laws in the world and when coupled with an anonymous bearer share corporation it becomes the most secure and private structure one could have in the world today. Panama has 400,000 corporations registered there as well as many of the merchant marine vessels and cruise ships in the world. Panama has about 150 banks many of which are large multi-billion dollar international conglomerates, yet the banking operation in Panama is a separate bank corporation operating under Panama bank secrecy laws. Panama has not had a bank failure in over five years. Panama has had only a few bank failures in its history whereas Switzerland had over 15 bank failures during the years 1999 to 2000. Panama tightly regulates its banks. Every Panama Bank must submit monthly auditing reports to Panama’s Banking Superintendent, which is under direct supervision by the Banco Nacional de Panama (BNP), the National Bank of Panama. A list of prominent international banks in Panama includes: Citibank, HSBC, Dresdner Bank, Bank of Tokyo, Bank of Boston, Banco Nacional de Paris, International Commercial Bank of China, Societe Generale, Banque Sudameris, BBVA, Banco Uno, Banco General, PriBanco, Banco del Istmo, Global Bank, MultiCredit Bank, PanaBank, ABN Amro, Banco Aliado, Banco Continental, BancoLat, BIPAN, Lloyds TLB Bank, and the Bank of Nova Scotia. Many of the Panama banks own office building skyscrapers 40+ stories tall with their name on the building. These are not grocery store sized banks found in the island jurisdictions. The Panama Stock Exchange has an average trading volume of $900,000,000.

Panama is free of hurricanes, volcanoes, tornadoes, and earthquakes which is why the Panama Canal was built there. Panama uses the US dollar as their national currency. Panama has modern telephones, cell phones and internet being a country having been built by the Americans which left Panama in 2000. Panama has a treaty with the USA calling for the USA to protect the Panama Canal if it was threatened. This means the peace and security of the Republic of Panama is protected by the USA which could have jet fighters there in minutes. Panama is the new Switzerland of the world.

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