Some banking institutions are so
large that they conduct international business transactions and have developed
operations in several countries to allow seamless customer service. Alternatively, correspondent relationships
allow a bank in one country to conduct transactions on behalf of a bank in
another country, which again provides the customer with a straightforward
transaction.
Historically, most of the branch
banks were in fact full-fledged banks organized and operated under the laws of
the host sovereign. Under the normal
corporate entity model, a multi-national corporation seeking to do business in
another country may establish an office there.
But because the banking business is so tightly regulated by most
countries, a foreign bank could not just open an office in the host country. Instead, it would have to charter an entirely
new bank within that country. Rather
than a true corporate subsidiary, the new bank would have to operate in
accordance with the laws and regulations pertinent to any bank chartered in the
host country. Separate books and records
for that branch organization had to be maintained, examinations by the
regulators of the host country had to be allowed, and relationships between the
parent bank and its subsidiary had to follow strict guidelines. Most countries even required a separate board
of directors for these branch banks, some even mandating that a certain
percentage be citizens of the host country.
Under either of the above models,
the bank in question establishes a physical presence in the country in which it
does business, by developing its own branch or working with an established
institution as its correspondent.
Jurisdiction issues therefore are easily resolved. Once the physical presence is established,
the bank becomes subject to the regulatory, adjudicative, and prescriptive
jurisdiction of the host state, province, or country.
