|Home > About the Fed > What We Do|
International Banking Facilities
International banking facilities enable depository institutions in the United States to offer deposit and loan services to foreign residents and institutions free of Federal Reserve System reserve requirements, as well as some state and local taxes on income.
IBFs permit U.S. banks to use their domestic U.S. offices to offer foreign customers deposit and loan services which formerly could be provided competitively only from foreign offices.
Among depository institutions which may establish an IBF are U.S. commercial banks, Edge Act corporations, foreign commercial banks through branches and agencies in the U.S., savings and loan associations and mutual savings banks.
Despite the use of terms such as "international banking facilities," "international banking zones," "international banking branches," and the "Yankee dollar market," which convey a meaning of special offices in separate locations, activities of IBFs can be conducted by institutions from existing quarters. However, IBFs' transactions must be maintained on separate books or ledgers of the institution.
IBFs enable institutions operating in the U.S. to compete more effectively for foreign-source deposit and loan business in the Eurocurrency markets abroad.
Institutions which operate IBFs are able to reduce the cost of foreign-source funds as a result of exemption from central bank reserve requirements imposed by the Federal Reserve. Also, IBFs can offer the short-term deposit maturities which are widely employed in foreign markets.
IBFs may offer foreign non-bank residents large denomination time deposits subject to a minimum notice of two business days before withdrawal. Foreign banking firms and official institutions may place overnight funds with IBFs. Foreign non-bank corporations must acknowledge in writing the Federal Reserve Board's policy that funds deposited in, or borrowed from, an IBF must be used only to support the non-U.S. operations of IBFs. The non-bank deposits at an IBF must be at least $100,000. Likewise, minimum withdrawals are set at $100,000.
IBFs also may extend credit to foreign residents, other IBFs, or the U.S. offices of the IBF parent—subject to Eurocurrency reserve requirements—and may transact business in foreign currency.
IBF operations are under the jurisdiction of the Federal Reserve and other federal and state regulators. However, the Federal Reserve's regulations don't give depository institutions any additional banking powers. An institution is subject to restrictions established by its chartering or licensing authority, or by its primary supervisor concerning the types of activities in which its IBF can engage.
U.S. regulators currently examine the foreign operations of U.S. banks through the U.S. head offices of the institutions, and regularly conduct on-site examinations of selected branches and subsidiaries abroad.
The IBF concept was formally proposed in July 1978 to the Federal Reserve Board of Governors by the New York Clearing House Association (now The Clearing House Payments Company/July 2004).
On June 18, 1981, the Board of Governors approved establishment of IBFs beginning December 3, giving state legislatures time to revise tax and banking laws.
As of April 2007, there were 232 IBFs in existence, 137 in New York State. Of the total, 169 were opened by branches and agencies, 57 by banks and savings and loan associations and six by Edge Act corporations.
Under Federal Reserve regulations IBFs can be operated in any state. Some states, including New York, have revised laws to facilitate IBFs. The revised New York State laws exempt from state and local taxes net income, over a base, derived from an IBF. However, those earnings are subject to federal taxes.