Related Organizations

International Banking Facilities

An International Banking Facility (IBF) is an alternative to an offshore branch or subsidiary. IBFs are financial vehicles designed to enhance the competitive position of banking institutions in the United States by permitting them to obtain, through an IBF, similar treatment afforded to offshore banking offices. An IBF is simply a set of accounts segregated on the books and records of a depository institution. Implemented by amendments to the FRB’s regulations 12 CFR 204 and 217, IBFs generally accept deposits from and advance funds to foreign customers, other IBFs, and the entity establishing the IBF. Foreign customers include, but are not limited to, residents of countries other than the United States, foreign affiliates of U.S. corporations, foreign banks, foreign government agencies, and quasi-governmental international organizations such as the United Nations. Both the deposits of and extensions of credit to foreign residents and foreign affiliates of U.S. corporations may be used only to support operations outside the United States. In general, such funds are exempt from reserve requirements and Federal Deposit Insurance Corporation (FDIC) assessments, and have tax advantages in some states.

Because IBFs have these advantages, an IBF has a lower cost of funds than an insured bank providing identical services. Using an IBF, a national bank can gain funding opportunities in international markets without having to establish a foreign branch. Subject to certain restrictions, IBFs have permitted banks to become involved in the Eurocurrency market from domestic bases. However, the relative advantage with respect to deposit reserves was largely eliminated when the FRB relaxed the deposit reserve requirements in the early 1990s. Another incentive to use IBFs is that they may be exempted from state taxes.

An IBF may purchase eligible assets from the entity establishing the IBF (subject to Eurocurrency reserve requirements), or it may sell such assets to that entity. Also, the entity may use the credit extended by the IBF domestically in the United States. ^[6] IBFs may also book off-balance-sheet items, provided the customer is eligible under, and the transactions comply with, applicable regulation.

No application and no approval are required to establish an IBF. An institution that wants to establish an IBF is required only to notify the FRB in its district at least 14 days before the first reserve computation period during which it intends to accept IBF deposits.

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