International Banking Facility (IBF)

What is an IBF?

An International Banking Facility (IBF) is a set of accounts and activities that allows U.S.-based depository institutions to provide deposit, loan and other banking services to non‑U.S. residents and foreign institutions while receiving limited regulatory and tax relief. IBF transactions are typically exempt from Federal Reserve reserve requirements and may receive favorable state or local tax treatment.

How IBFs work

• IBF business can be conducted from a bank’s existing U.S. offices, but IBF transactions must be recorded in separate accounting books.
• IBFs serve only foreign customers (non‑U.S. residents and institutions).
• IBFs are subject to oversight by the Federal Reserve and other state and federal regulators.
• IBF accounts are not insured by the Federal Deposit Insurance Corporation (FDIC).

Why IBFs exist

IBFs were created so U.S. banks could compete more effectively for foreign‑source deposits and loan business in global (Eurocurrency) markets. By reducing reserve costs and, in some jurisdictions, tax burdens, IBFs make U.S. institutions more price‑competitive with foreign branches and offshore banks.

Which institutions may establish an IBF

Eligible depository institutions include:
* U.S. commercial banks
* Edge Act corporations (subsidiaries that engage in foreign banking)
* Foreign banks operating through branches or agencies in the U.S.
* Savings and loan associations and mutual savings banks

Edge Act and agreement corporations

• Edge Act corporations are federally chartered subsidiaries authorized to conduct international banking operations. They were created to enhance the global competitiveness of U.S. financial firms.
• Agreement corporations are state‑chartered entities that enter into an agreement with the Federal Reserve to engage in international banking. Functionally, they serve a similar purpose as Edge Act corporations but are organized under state law.

Regulatory and tax considerations

• IBF activities are exempt from reserve requirements imposed by the Federal Reserve (a key cost advantage).
• Some states offer additional tax incentives to attract IBF activity; for example, certain states exempt IBFs from state income tax, intangible personal property tax, or documentary stamp taxes.
• Despite regulatory exemptions, IBFs remain under federal and state supervisory jurisdiction and must comply with applicable reporting and prudential rules.

Limitations and risks

• IBF deposits and accounts are not covered by FDIC insurance.
• Separate accounting and compliance requirements apply, increasing operational complexity.
• Tax and regulatory benefits vary by state and may change with law or policy shifts.

Key takeaways

• IBFs let U.S. depository institutions serve foreign customers with some regulatory and tax advantages.
• IBF operations must be kept separate in the bank’s books and remain supervised by regulators.
• They improve U.S. banks’ competitiveness in international deposit and loan markets but are not FDIC‑insured and carry distinct compliance requirements.