Subsidiary Bank
What Is a Subsidiary Bank?
A subsidiary bank is a type of foreign entity that is found and incorporated in a foreign country yet is either entirely owned or owned in a major part by a parent corporation in an alternate nation. This particular banking model assists the parent with companying stay away from unfavorable regulations implemented by the nation of origin. Subsidiary banks don't comply with regulations that apply in the nation of origin or nations where the parent company is incorporated. All things considered, they operate under the laws and regulations of the host country.
How a Subsidiary Bank Works
A subsidiary bank permits a parent bank to perform certain activities in the host nation. Inside the system of this model, a parent bank can lay out a banking presence associated with the buying and selling of securities. The platform would benefit a bank in the U.S., for instance, hoping to extend investment banking and trading operations in the United Kingdom. A parent company must charge a fee reliable with the host country for services delivered. This guarantees approaching banks stay competitive with domestic financial institutions, as well as other foreign-owned banks present in the nation.
Subsidiary banks are commonly unfit to offer a full set-up of retail banking services. The sheer size of loans a subsidiary bank can start could not hope to compare to a foreign branch bank. Subsidiary banks accommodate this deficiency by succeeding in different activities like underwriting securities.
Subsidiary Bank versus Foreign Branch Bank versus Affiliate Bank
Subsidiary banks and foreign branch banks contrast in the different services they can offer customers. For example, foreign branch banks are limited by regulations that apply to the parent company and the country where the bank operates. Besides, branch banks can start bigger loans than a subsidiary bank since assets held by the parent company influence loan sizes.
On the other hand, a subsidiary bank can guarantee securities, while most bank branches center around retail services. Picking an international banking model at last relies on how the company expects to operate in the host nation. For instance, a U.S. bank that expects to sell securities in Canada ought to form a subsidiary bank. In any case, a bank that desires to make loans might choose to focus on a bank branch format.
An affiliate bank is one that is just partially owned, yet not controlled by its foreign parent. Both subsidiary and affiliate banks operate under the banking laws of the country in which they are incorporated. Both subsidiary banks and affiliate banks are permitted to participate in security underwriting.
Features
- A subsidiary bank is a type of foreign entity that is found and incorporated in a foreign country however is majority-owned by a parent corporation in an alternate nation.
- Subsidiary banks are commonly incapable to offer a full set-up of retail banking services.
- Subsidiary banks just need to operate under the laws and regulations of the host country.
- This particular banking model assists the parent with companying stay away from unfavorable regulations upheld by the nation of origin.
