Offshore Banking: An Analysis of Micro- and Macro-Prudential Issues

Concept of Offshore Financial Centers: In Search of an Operational Definition

“…Johnston ( 1982) Errico and Musalem (1999) Low-or zero-taxation scheme Dufey and Giddy (1978) McCarthy ( 1979) Park (1994) Johnston (1982) Errico and Musalem (1999) Disproportion between the size of the financial sector and the domestic financing needs Johnston (1982) Dealings in currencies that are not the currency of the country where the center is located Park (1994) Offshore banking activity is essentially entrepôt business Johnston (1982) OFCs are locations for the temporary storage of funds IMF (1995) Centers separated from major regulating units (states) Hampton (1996) The separation could be by geography and/or by legislation. This criterion is not pertinent because the mere partition of offshore business from the main economy lacks enough specificity to characterize an OFC (see Appendix II).…”

Capital Account Liberalization and Financial Sector Stability

“…In the banking crises in Venezuela (1994) and Paraguay (1995), the failure of parent banks and home country supervisors to adequately monitor offshore establishments further weakened the domestic financial sector. 74 Financial Stability Forum (2000c); Errico and Musalem (1999).…”

Measures to Limit the Offshore Use of Currencies: Pros and Cons

“…The banks operating in these markets are exempted from regulations normally imposed on onshore institutions, such as reserve requirements on deposits, taxes on bank transactions, or interest or exchange rate restrictions. In some cases (but not all), they are also exempted from regulatory scrutiny with respect to liquidity and capital adequacy and extensive disclosure requirements (Ericco and Musalem (1999)).…”