Offshore customers financial protection

If an offshore jurisdiction does not have effective banking legislation and banking supervision, the chances that any bank in this particular jurisdiction can go bankrupt and offshore customers can loose their money are bigger.

Like with due dilgence requirements, there are internationally accepted standards on how the financial supervision of banks should be undertaken. The most popular international document to refer is Basel Accords, or banking supervision accords Basel I and Basel II issued by the Basel Committee on Banking Supervision - institution created by the central bank Governors of G10 countries. In practice, these supervision standards attempt to setup rigorous risk and capital management requirements in order to ensure that a bank holds capital reserves appropriate to the risk it exposes itself to through lending and investment practices.

Regarding offshore banking supervision, it is important to learn that the guaranteed or insured deposit amount the authorities of particular jurisdiction will return (like FDIC protection in the USA) in case of bank's default as well as to know how strong this offshore jurisdiction is to fulfill the liabilities. When deciding on financial protection issues, the most important is selecting the right offshore jurisdiction in accordance with these criteria rather than selecting one particular bank within an offshore jurisdiction. As an example – Switzerland again.

There's no government deposit insurance in Switzerland (except for Swiss postal where all deposits are fully guaranteed by the Swiss government). But your deposits are probably safer in any Swiss bank than in most other offshore banks in the world because:

1) Swiss banks normally do not go bankrupt. They have some of the strongest balance sheets worldwide. Swiss banks are regulated by the Swiss Federal Banking commission, which is the federal watchdog enforcing very strict rules. Swiss banks can encounter difficulties, approximately once in a decade, with small savings and loans that loaned too much money on too little collateral – and, perhaps, this is the only risk. It is also important that such banks are usually bought out by a larger bank;

2) Swiss banks have a private deposits insurance. They have signed an agreement, according to which will compensate depositors up to Swiss Franks 30,000 of their deposits in a bank if the bank goes bankrupt; and, in this case, each bank would pay a share of the total compensation which is counted based on proportion to their size.