Parallel-owned banking structures

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BCBS  | 
24 January 2003
Status:  Current
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 |  10 pages


Parallel banks are defined as banks licensed in different jurisdictions that, while not being part of the same financial group for regulatory consolidation purposes, have the same beneficial owner(s), and consequently, often share common management and interlinked businesses. The owner(s) may be an individual or a family, a group of private shareholders, or a holding company or other entity that is not subject to banking supervision. Parallel banking relationships may exist, unknown to the supervisors of the parallel banks.

Such structures may be established for a variety of reasons, among others: to take advantage of different tax arrangements; to avoid legal restrictions in some countries on the ownership of foreign subsidiaries by domestic banks; or to diversify risk outside countries that are considered economically or politically unstable. In some cases, the motivation may be an attempt to evade regulatory constraints or consolidated supervision from the home country.

Even though a close relationship may exist between the parallel banks, they are not members of a defined banking group that is subject to consolidated supervision. Consequently, parallel-owned banking structures present greater risk for supervisors who may be unaware of the nature and extent of any relationships and transactions between the banks that may have an impact on its safety and soundness. This opaqueness may also provide an incentive to the controllers to use the banks to provide undisclosed support mechanisms or to mask the true risks within the group. Finally, problems encountered in one bank may cause a loss of confidence in the parallel entity, even if there are no transactional links.

Given the supervisory issues that may arise with parallel-owned banking structures, there is a presumption that in principle such structures should not be permitted and this has been the Committee's attitude over recent years since the failure of BCCI. This paper sets out supervisory guidance for dealing with parallel banks.