What are Foreign Branch Banks?
A foreign branch bank is a type of foreign bank that has opened a branch in another country. They differ to subsidiary banks which are technically separate legal entities owned by a parent corporation. Foreign bank branches have dual banking regulations and are obligated to follow the regulations of both their home and their host countries (ie. Bank of China’s Australian branch has to follow both China’s and Australia’s regulations).
In Australia, unlike locally incorporated ADIs, foreign branch banks are not required to maintain endowed capital in Australia and are not subject to any capital-based large exposure limits. Their loan limits are therefore based on the parent bank’s capital.
In Australia foreign branch banks are restricted from accepting deposits from individuals and non-corporate institutions of less than $250,000. Additionally, provisions under the Banking Act 1959 (Cth) in relation to the protection of depositors do not apply to foreign branch banks, including the $250K Australian Government guarantee and the depositors priority over other creditors. Foreign Branch banks need to disclose this information to prospective depositors.