A subsidiary bank is owned by a parent bank in a different country and only needs to follow regulations in the country where it operates. It differs from a foreign branch bank, which is subject to both parent and host country regulations. The choice between the two depends on the bank’s goals for establishing a presence in another country. Charges for subsidiary bank services must comply with host country regulations.
A subsidiary bank is a banking operation that is incorporated in the country where it operates, but is owned by a parent bank that is incorporated in a different nation. This particular banking model is useful, as the agreement only requires the subsidiary to operate in accordance with the regulations that apply to banking in the host country. Subsidiary banks are not subject to the banking regulations that apply to the parent bank in the nation or nations where the parent is incorporated.
There are some important differences between a subsidiary bank and a foreign branch bank. With the latter, the bank is subject to the regulations that apply to the parent, as well as to the regulations in force in the country where the bank actually operates. In addition, a foreign branch bank can also issue considerably more loans than a subsidiary bank, since the assets held by the parent influence the size of the loans. Conversely, a subsidiary bank has the advantage of being able to write securities, a function that is not necessarily possible with a foreign branch bank.
For this reason, banking institutions are looking closely at what they want to achieve in terms of establishing a presence in another country. If the goal is to be able to offer loans in the host country, then the foreign branch bank model will be the logical choice, as this approach allows the bank to offer more lending and lending options. If the primary reason for establishing a banking presence in the host country is related to buying and selling securities, structuring the new entity as a subsidiary bank would provide the framework for the project. For example, if a US-based parent bank wanted to open an operation in the UK in order to offer secure transactions to consumers, the subsidiary bank’s platform would be the best option.
In terms of charges for the services offered by the subsidiary bank, these must be in harmony with the regulations that apply to all banking establishments operating in the host country. This allows banks to be competitive with domestic financial institutions, as well as other foreign-owned banks that have a presence in the nation. When evaluating the services offered by a subsidiary bank, it is important to compare those rates with those available from other institutions, as well as take a close look at the terms and conditions that apply to customer accounts.
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