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What is a Subsidiary Bank?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 September 2016
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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, in that the arrangement only requires that the subsidiary operate according to the regulations that apply to banking in the host country. Subsidiary banks are not bound by 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 bound by the regulations that apply to the parent, as well as the regulations that are in effect 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 amount of loans. In contrast, a subsidiary bank does have the advantage of being able to underwrite securities, a function that is not necessarily possible with a foreign branch bank.

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For this reason, banking institutions look closely at what they wish to accomplish 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, since this approach allows the bank to offer more in the way of loans and loan options. Should the main reason for establishing a banking presence in the host country relate to buying and selling securities, then structuring the new entity as a subsidiary bank would provide the framework for the project. For example, if a parent bank based in the United States wanted to open an operation in the United Kingdom for the purpose of offering security transactions to consumers, the subsidiary bank platform would be the best option.

In terms of charges for the services offered by the subsidiary bank, these must be in harmony with any regulations that apply to all banking establishments that operate in the host country. This allows the 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 look closely at the terms and conditions that apply to customer accounts.

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aviva
Post 2

@whitesand - No need to apologize. I'll try to explain as best as I can. Bank of America is one of the largest banks in the world with over five thousand branches and ATM's worldwide.

So, yes you will have access to your money while visiting a foreign country. However, there are a few things you might need to keep in mind.

First of all you should know the current currency exchange rate because the money that is dispensed in that country will be the local currency, but dollars will be debited from your U.S. account.

Secondly you may need to set your language preference for the ATM machine after you enter your pin number.

And one

final, but important note is to make sure you contact your bank that you will be traveling abroad for an indefinite amount of time. You should call the number that's on the back of the card. This will allow the agent to place a travel flag on your account to avoid any interruption in service.

Hope this helps. Good luck and have fun!

whitesand
Post 1

I am a student and will be transferring to Iceland soon to continue my education as a Volcanologist. Almost all of my banking transactions are done online at Bank of America's site.

My question is will I have access to my U.S. bank checking account for cash withdrawals in a foreign country? I apologize for my lack of intelligence in this area.

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