Captive Bank

A banks captive is a bank used and controlled by the same group of people or consequently company. These particular legal entities can also be useful for the account of an individual, or a family.

These banks meet in states profiting from jurisdictions more tolerant, more flexible but especially less imposed. These states are the Tax shelters:

These countries allow the constitution of prisoners known as pure , i.e. banks functioning only for a group of moral persons or physiques determined, in advance with the local authorities of the host country.

Of another states allow the constitution of captive banks but these states are is gangster as Nauru or the impositions related to the activities of the bank are taxed too much as with Jersey, these states thus lose a share of their interest.

Interests of this type of bank

(This point is also developed with the chapter of the Cayman Islands).

Several advantages determine the purchase of a license of captive bank:

the price of the license, bordering the 50 000 $ for the least expensive and 100 000 $ for most expensive; these figures are not exaustifs.

the impositions and other taxes, these banks being made up in Tax shelters, the word tax takes a ridiculous turning in these states where renewal fees of operation of approximately 2 500 $ will be a good average.

the banking ratios, indeed the founder of the bank can negotiate with the government of reception of the very advantageous banking ratios. These ratios will be weaker if the authorized capital of the bank is high. A ratio of 30% is a very good rate since it will make it possible to lend to the customers predetermined in advance approximately 3,3 times the sums deposited in the bank and to make pay interests on these sums.

the minimum authorized capital, another great advantage where it is then possible to found its own bank with authorized capital of approximately 10 000 $ for the least expensive states and until 1 000 000 $ for the most expensive places. That can appear important but, as example, in France the minimum authorized capital must be of 80 000 000 €.

the minimal infrastructures, a letter box in the host country is the minimum.

However, of the captive banks worthy of this name must have offices with the risk to abroad attract the suspicions of the states of reception which will think that your establishment allows the bleaching of capital and the sanctions will be very severe because all the quoted states, except Nauru, signed with OECD an agreement making of them partisans for the fight against tax evasion and the dirty money laundering. A captive bank is very seriously controlled (not with the direction fiscal control inquisitor), the least variation results in heavy penal sanctions.

the access to the world interbank market, possibilitée thus to act on the financial markets, to use its own notebooks of accounts - checks, etc

opportunity of making fortune, indeed these banks allow a formidable financial action leverage: you deposit 10 000 $ in your bank and negotiate a ratio of 40%, you have thus have the possibility of lending to 2,5 times this sum to your privileged customers.

Maybe, 25 000 $ on which you will perceive let us say 5% of interests. You will thus gain 1250 $ free from all taxes because your captive bank pay only one right of activity to the year. The sums being modest, your profit not to undoubtedly allow not to cover this right, but imagine with lent sums of 100 000 $, in the same condtions of loan that make you 12 500 $ what to cover your overheads.

Captive banks today

The captive banks are used pricipalement by private firms whose principal activity is completely foreign with finance. Thus, it is completely possible that a car manufacturer for example needs the flexibility of these entities. It would seem that the Hedge Funds use the assemblies which these captive banks mainly for the strategy of " allow; leveraged" who consists with to involve in debt on his capital stocks own and this, with a very high ratio; thus the bottom LTCM used ratios of about 400/1.

Example for Hedge Fund: The manager of bottom XXX saw himself entrusting 1,000,000 $ by his customers with an objective of performance of 100% to the end of the year is 2,000,000 $. XXX has a captive bank in the Cayman Islands, the local laws authorize the bank to be lent to a ratio of 20% is 5 times the sums in the accounts of the bank. While simplifying, the only customer of this bank is XXX and its 1,000,000 $, XXX can thus be seen lending a maximum of 5,000,000 $ by its own bank and the manager, to fill his contract with performance, will not have to carry out that 20% of performance out of the 5,000,000 $ are well 1,000,000 $ and all that without least the expenses because the bank belongs to XXX. Thus, by multiplying the captive banks which can lend themselves money mutually the lever can quickly become very important; and losses too.

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