Why shouldn't sovereign risk be my main concern ? Isn't sovereign risk related to depositor protection schemes ?
If you are putting money in a bank in a foreign country, you want to know a whole slew of things 1) Is the bank sound? Don't forget that the bank just turns around and loans your funds to somebody else, so you want to have a bank that is unlikely to go under from bad loans / fraud. What is the bank going to do with your money? You might want to get interested in the local resi real estate scene for instance if your savings are going to be recycled into home mortgages. 2) If the bank goes under, what is the deposit protection regime? ie will someone make me whole? 3) Does the deposit protection regime cover foreigners? Gringos usually get the shorter end of the stick. 4) In the past, have banks prevented depositors from withdrawing for any reason? Sometimes to stop bank runs, you may find your withdrawal rights restricted. So that covers issues related to the bank Now you also got currency exposure & capital control exposure I'm assuming you want to put money abroad because you think the USD is headed for a gloomy future. So you've already made a directional bet on FX in your mind. 5) You would like to get a sense as to the fiscal responsibility of the government and possibly the independence of the central bank (or whoever it is that prints money). 6) You also need to get a sense as to what political parties are on the up and up. Europe is seeing a rising tide of conservatism even as America sees a rising tide of socialism. 7) You want to look into capital controls - are they likely to use them. ie stop you from withdrawing your money out of their borders. 8) Finally, don't forget your home country reporting regime on offshore deposit accounts. Some countries like the US have a harsh regime because they don't trust their citizens. Most other countries are quite lax.
Because it's much more likely that the bank you give money to goes under before the country's govt does, rather than vice versa. So the bigger question is whether, in case of the bank's failure, the govt has a scheme to protect your deposit. No, it's not directly related. The only relationship is that any depositor insurance scheme is a contingent liability for the sovereign. As to the other things, I agree with student's points.