What is Subsidiary Bank?
Definition of Subsidiary Bank
Subsidiary bank is a local branch of a bank based in a different country. It is incorporated in the host country and is only obliged to follow the laws of the host country. This makes a subsidiary bank a convenient way for large parent companies to avoid unfavorable regulations in its home country.
Explanation of Subsidiary Bank
A disadvantage of operating a subsidiary bank is that the amount of loans that the bank can make is much less than what a foreign branch bank can make. However, an advantage of operating a subsidiary bank is its ability to underwrite securities.
It depends upon the strategy of the parent bank whether it want to offer loans or dealing in securities. If the objective is to offer loans in the host country, then the foreign branch bank model will be the logical choice. If the objective is to deal in buying and selling securities, then establishing a subsidiary bank would be suitable.