Bank Owned Life Insurance (BOLI) is a common practice in the financial services industry.
I cannot speak to international banks, but in the United States there are specific regs governing the practice. The Bank may only insure executive level officers and up. They must have the written consent of the individuals to be insured and have the bank named as beneficiary and the proceeds of any policy paid upon death must be used to cover retirement plan benefit funding.
Most banks invest in products that provide a steady stream of dividends from the initial policy investment premium. This helps steady revenue and minimize the damage to the banks quarterly numbers in down cycles of the economy. The concern is on the balance of knowing when to get the assets out of certain investments before they downturn and cause the underlying premium values to plummet this mandating additional premiums to maintain insured values or loss of insured values.
Failure to properly monitor these investments and act on market fluctuations has caused some very big banks to litigate against some very big insurance and investment houses losses in the 8 and 9 figure range. The argument is usually the bank accusing the investment house of minimizing or misrepresenting material facts and the investment house countering that the bank was addicted to the dividends because they helped make the quarterly numbers and were afraid of upsetting stockholders - in so doing they stayed in the investments at issue too long and rode it into the dumpster.
I also know someone whose father was murdered by his financial sector business partner for the sake of the insurance payoff.