What is an International Banking Facility (IBF)?

An international banking facility (IBF) is an account that a US bank creates to provide its services (deposit and loan services) to non-American residents and institutions.

It essentially allows banks to operate a deposit and loan business with foreign residents and foreign banks.

According to the Federal Reserve Bank of New York “IBFs enable U.S. institutions to compete more effectively for foreign-source deposits and loan business.”

Banks can operate international banking facilities where they conduct their major operations. However, accounting is segregated on its books and records.

The Federal Reserve System does not impose requirements on the services provided by an IBF and is not insured by the Federal Deposit Insurance Corporation – this makes IBFs not subject to the interest rate ceilings then in effect.

This means that deposits into an international banking facility can potentially earn more interest compared to those made by American citizens.

Various states promote banking institutions to create IBFs by giving them favorable tax treatment under state or local laws.

The following depository institutions are allowed to establish an IBF in the United States: mutual savings banks, savings and loan associations, foreign commercial banks through branches and agencies in the US, Edge Act corporations and commercial banks.

An international banking facility time deposit (IBF time deposit) is a deposit, placement, borrowing or other obligation represented by a promissory note – not issued in negotiable or bearer form. An IBF time deposit typically has to remain on deposit at the IBF for at least a day.

The concept of the IBF was first proposed in July 1978 by the New York Clearing House association to the Federal Reserve Board. In June 18, 1981, the Board of Governors approved the formation of IBFs.