Commercial banking services are tailored towards users and thus contribute to efficiency. High income customers with sizeable assets or investment needs may apply to exclusive private banking departments of a financial intermediary for professional advice. Matching the needs of high net worth individuals with professional private banking services requires an extensive optimization of the appropriate solutions. This often includes sophisticated asset and wealth management, and international tax planning. An example of such a creative solution is the back to back loan where a credit facility is provided by the bank whilst keeping collateral at a blocked account with the bank. The loan potentially provides for a tax advantages where the deposit generates interest.
Retail banks limit their product portfolio often to their own products. Private banking clients have different needs and may require unbiased and tailored advice. As such, the exclusivity of the service places the customer at the center of the product offering. The nature of these activities limit the charges by the bank to transaction fees and financial advice. Therefore, the clientele suitable for this particular and exclusive service is willing and able to pay for it.
The private banking industry is distinct from traditional retail banking. Private banks may wish to structure their operations via an investment banking format. It follows that these commercial institutions not always hold assets of their clients on their accounts and Basel capital requirements do not apply. In case of default of the institution, regular insolvency proceedings and tort law supersede bank regulation.
International corporations and professional business people may qualify for private banking and wealth management services. These services are often provided in collaboration with international business centers and specialized branches in tax friendly locations. There is a thin line between legal tax avoidance and potentially criminal tax evasion due to the global nature and the quest for profit optimization. This is something qualifying customers need to take into consideration to avoid problems with their local tax authorities. International banking, finance and taxation is complex. Professional advice is therefore recommended for those willing to enter this arena.