Why offshore banking in Latvia is the new hotspot

Written by Andrew Henderson
Offshore banking in Latvia

While Latvia is quite chilly now, the Latvian banking sector is heating up with foreign deposits.

Dateline: Chicago, United States

I’m spending a few days with business associates here in Chicago after wrapping up our Passport to Freedom event in Las Vegas. The event was a phenomenal success with speakers coming from all around the world, and a great crowd that didn’t want to miss a minute of the material.

The truth is, being back here shows me that the signs that the United States is on the decline are obvious. I wrote last week before the event that Las Vegas seems much less shiny and exciting when you compare it to gambling meccas like Macau.

It’s just another sign that the United States isn’t the only game in town, and that you should be making adjustments.

As one example, none of the moving walkways at the five-star Bellagio were working during the week I spent in Vegas. Things have gone downhill in Las Vegas and in the United States as companies can ill afford to put money into keeping their hotels and other businesses in working order.

Considering revenues on The Strip are basically stagnant – rather than growing at a twenty percent clip as they are in Macau – it’s not entirely surprising that companies in Vegas are merely letting the “small things” go and cheapening the experience for customers.

At Passport to Freedom this past weekend, we discussed – among other things – the best places to bank offshore. One speaker pointed out a key difference between banking with US banks and banking in Latvia.

For one thing, it’s possible to earn higher interest rates in Latvia banks, especially by holding foreign currencies.

You can even own gold in many cases.

And while the European Union is not the poster child for economic wellbeing, you can escape the woefully insolvent FDIC.

However, one thing I’ve heard about banks in Latvia and other business-friendly European countries is how good the service is.

While the United States has long had a reputation for providing some of the best service on earth, it also has a reputation for being the most free nation in the world.

In reality, banking in the United States is a horrible experience. Thanks to the endless expensive regulation of their industry, US retail banks now charge huge fees.

Every time some bankrupt politician comes up with a new idea to meddle in the banking sector, the cost of merely having a bank account increases. This has been the case under all of the legislation created under Barack Obama’s reign against financial freedom.

Meanwhile, try finding a US bank that offers any kind of real service these days. Their idea of customer loyalty is handing out free T-shirts for opening accounts.

At Passport to Freedom, we discussed opening an account with a Latvian bank that has been fast rising as one of the top banks in the country.

In fact, Latvia, in general, has been rising as an offshore banking center as the country’s stable banks starting accepting deposits in the wake of the Cyprus bank debacle.

The country did the hard work of getting back on track after huge economic devastation six years ago, and the results have been good. Everyone I know who banks in Latvia is thrilled, even if they are closing the door on US citizens.

One story I’ve heard over and over is how one Latvian bank sends out new account paperwork, complete with a Visa Signature card, in a beautiful jewelry box. It’s really classy.

And it sure beats the wad of paperwork spelling out the draconian terms and conditions of opening a bank account in the United States. Banks here don’t even hand out toasters (or the aforementioned T-shirts) for opening an account anymore.

I see one of the big differences as competition. In a country of a few million people, Latvian banks must be competitive in order to retain business. Merely serving up mediocre services to an insulated country’s population that doesn’t know any better won’t work.

For example, many US banks still use magnetic strip technology on debit cards, as opposed to the safer pin-and-chip technology used in the rest of the world. In a country renowned for innovation, the US is the least advanced developed country when it comes to banking.

At Passport to Freedom, I shared seven new safe havens which included new countries for offshore banking. The reason is that your living in one country doesn’t magically make that country’s banks more stable, better, or safer.

It’s kind of funny how people have flocked to Swiss banks for years. Now they are flocking to Latvia, to Malta, and to Singapore as the luster of the Swiss bank account wears off. That’s the “nomad” in Nomad Capitalist; there is always a new safe haven to go to.

If you’re interested in discovering the best banks in Europe and Asia that offer excellent service and excellent stability, get in touch. My team and I keep a record of over 900 banks around the world that work with various holistic offshore strategies.

Andrew Henderson
Last updated: Dec 16, 2019 at 11:07PM

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  1. Nomad Capitalist

    Thanks for the comment. As of 2017, we’re currently holding events for clients only.

  2. Michael Bruce Rosmer

    Now, let’s talk Latvia since it is definitely one of the most popular and fresh international banking centers, one of the few remaining places that opening up account for international businesses is both easy and can be done remotely (most places either won’t do it or it’s getting harder and harder). Let’s start with the fact that if someone is going to criticize the US banking system’s integrity they’d best not head to Latvia as an alternative (there are other advantages such as being beyond the reach of US courts but that’s another matter entirely). If you’re looking for bank stability look to some of the banks in Switzerland (certainly not all but some), Canada, Australia, or Singapore but make sure you bank in the local currency. Lots of people don’t seem to get the complexities of bank stability they think because a nation has a large national debt (potentially irrelevant), or the liquidity ratios are low, or the reserves are low, etc. that these are good indicators. In practice a good number of these have been proven irrelevant either by bank failures, or the lack of bank failures so let’s consider a few nations to compare:

    – US
    – Canada
    – Belize
    – Cyprus

    There’s lots of talk about how bad the situation in the US is and though it’s true the US is becoming less relevant the banking system is still extremely solid primarily for three reasons. First, because they have a central bank that can print the currency the accounts are typically held in. What does this mean? It means if anything ever goes wrong they have an unlimited ability to absorb the losses and bail out the depositors. There might be consequences to this but they can do so. The second thing is what goes along with this, which is a HUGE economy and more importantly a vast monetary supply. As large as the US economy is and it dwarfs all others, the US monetary supply is far larger since most of the rest of the world relies on it as one of their primary currencies. This means worst case scenario if the US starts devaluing their currency (a whole other misunderstood topic) the rest of the world gets to shoulder the losses along with the US, which makes it far easier for them to do than say South Africa devaluing the RAND, which no one cares about but them. This is a massive protection against weakness in the US banking system that very few economies if any can boast. The third reason is the banks are big, very big. What does this do for them? They can afford to take some losses and still recover, which can’t be said for your little Belize bank or Gambian bank.

    So what makes Canada safer than the US? It’s actually not so much better ratios. Canada has their own central bank and can print money like the US, they have a fairly large economy relative to the amounts of money involved, and they’ve got very large banks (larger than the US compared to the population). Those are all good things. But Canada has another advantage, which comes in the form of the mortgage insurance regulations and consequently the protection the banking system has from exposure to high leverage losses as well as somewhat of a better regulatory environment.

    Canada provides a nice contrast to Belize because Belize will boast reserve requirements twice as high as the US (even though reserve requirements don’t matter much, it’s capital requirements that really matter) and the Belize currency is pegged to the US dollar. So what’s the problem? Belize can’t print US dollars and who actually uses their currency? Not to mention it’s a tiny country with tiny financial institutions so if it comes down to needing to bail them out their capabilities are limited. Belize has some strong benefits in terms of banking but the durability of the system in the face of bank failures isn’t one of them.

    This brings us to Cyprus, which has been very similar to what Latvia is like today. Cyprus wasn’t well managed and it’s a pretty small economy so there isn’t a large infrastructure to catch it domestically. It was also a poorly run jurisdiction in terms of the risks the banks took. Cyprus did have a semi-advantage, which is the European Central Bank was there to protect it (this is the case for Latvia as well, which also recently had a bunch of bail outs but a country like Belize wouldn’t have a large central bank to bail it out, though it has a domestic bank that might). The problem is they didn’t have any autonomy over the central bank because they were using the Euro, which meant they were at the whim of the EU. By contrast if UK were to fall into a similar peril they’re still on GBP and have autonomy over their choice of bail outs, which typically are much more likely to protect their citizens than a foreign body is. The whole situation is slightly more complicated than I’m portraying here but leaving out any of these considerations is missing the overall picture.

    There’s a final piece that matters a lot, which is the state of the overall economy. Banks tend not to fail in boom times and if they do another bank is usually more than willing to buy it out and pick up the pieces, which they can do because they’ve got the money. When the economy goes down and liquidity is scarce and asset values declining it’s much less certain. The simple truth is smaller economies are more subject to radical change, especially if those economies don’t have mitigating factors (economies like Canada and Australia have huge natural resource deposits that aren’t going anywhere fast, true the demand for those resources could decrease radically, which is why paying attention to the US and other demand for Canadian oil is important, but these are generally short lived because there are real assets to go after that someone’s willing to pick up at the right price). Often in smaller economies dependent on fewer industries, often tourism industries, and other highly volatile industries you’ve got significant opportunity for downside. Comparing this to an economy like the US yes it can decrease but it’s highly diversified so for example the US weathered the .com failures pretty well in spite of massive losses in market capitalization. Other smaller less diverse economies likely wouldn’t have been able to weather the storm so easily.

    Latvia is at risk of being the next Cyprus. Hopefully, those with deposits are paying attention to the state of the local economy, the banking system, and the individual banks they are using. This doesn’t mean they are at immediate risk, Cyprus wasn’t either for many years, but it’s something to monitor and trying to compare the stability of Latvia or Cyprus banks to US or Canadian or UK banks is to miss a good deal of what makes them stable.