September 1988

International Banking Facilities

Sydney J. Key and Henry S. Terrell


The Federal Reserve Board permitted banking offices located in the United States to establish International Banking Facilities (IBFs) beginning in December 1981. The purpose was to allow these banking offices to conduct a deposit and loan business with foreign residents, including foreign banks, without being subject to reserve requirements or to the interest rate ceilings then in effect. IBFs are also exempt from the insurance coverage and assessments imposed by the Federal Deposit Insurance Corporation. In addition, a number of states have encouraged banking institutions to establish IBFs by granting favorable tax treatment under state or local law for IBF operations.

This paper summarizes the history of the IBF proposal and discusses Federal Reserve Board regulations for IBFs and the treatment of IBFs under state and local tax law. The paper analyzes IBF activities and the use of IBFs in comparison with domestic offices and with foreign branches. The growth of IBFs is evaluated in relation to activities in other international banking centers. The paper concludes that IBFs have not turned out to be the dramatic innovation that some had predicted and that IBFs simply provide another center for booking transactions with foreign residents in a regulatory environment broadly similar to that of the Euromarket. In particular, IBFs appear to be used for a large proportion of transactions with foreign residents that were, or would otherwise have been, booked at Caribbean branches of U.S. banks. To date, the operation of IBFs has not presented a problem either for the conduct of domestic monetary policy or for bank supervision.

PDF: Full Paper

Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.

Back to Top
Last Update: March 30, 2021