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

_IMF Working Papers, January 1, 1999_

## Source details

**Canonical URL:** [Offshore Banking: An Analysis of Micro- and Macro-Prudential Issues](https://www.imf.org/en/publications/wp/issues/2016/12/30/offshore-banking-an-analysis-of-micro-and-macro-prudential-issues-2867)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/offshore-banking-an-analysis-of-micro-and-macro-prudential-issues-2867/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/30/offshore-banking-an-analysis-of-micro-and-macro-prudential-issues-2867/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/30/offshore-banking-an-analysis-of-micro-and-macro-prudential-issues-2867/bundle-manifest.json)

## Bibliographic details
- Authors: Luca Errico, Alberto Musalem Borrero
- Published: January 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451842166.001

---

### Summary
- The paper examines offshore banking as a pervasive practice that has played a role in recent crises.
- Offshore banking is an increasingly attractive alternative to the sometimes heavily regulated financial markets of emerging economies.
- From a microeconomic vantage point, offshore banks appear to exploit the risk-return tradeoff by being more profitable than onshore banks, and in many instances also more leveraged.
- Risks stemming from offshore activities may be easily transmitted onshore with systemic consequences.
- Current prudential and supervisory frameworks are broadly adequate for risk management if effectively and universally implemented.

### Microeconomic findings
- Offshore banks seem to exploit the risk-return tradeoff by being more profitable than onshore banks.
- In many instances offshore banks are also more leveraged.
- The combination of higher profitability and higher leverage implies concentrated risk-taking incentives at the institution level.

### Macroprudential findings
- Risks originating in offshore activities can be transmitted onshore with systemic consequences.
- The cross-border nature of offshore banking complicates containment and crisis management at the national level.
- Effective and universal implementation of prudential and supervisory frameworks is essential to manage aggregate risks.

### Policy implications and recommendations
- Ensure effective implementation of existing prudential and supervisory frameworks across jurisdictions.
- Promote universal application of supervisory standards to reduce risk transmission from offshore to onshore banking systems.
- Focus on cross-border coordination to address systemic vulnerabilities arising from offshore banking activities.

---

## Content in this bundle

- **Offshore Banking: An Analysis of Micro- and Prudential Issues - WP/99/05**
  - [Offshore Banking: An Analysis of Micro- and Prudential Issues - WP/99/05 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/1999/_wp9905.pdf.md){rel="alternate" type="text/markdown"}
  - [Offshore Banking: An Analysis of Micro- and Prudential Issues - WP/99/05 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/1999/_wp9905.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/offshore-banking-an-analysis-of-micro-and-macro-prudential-issues-2867_