DEFINITION of 'International Banking Facility - IBF'

An International Banking Facility allows depository institutions in the U.S. to offer deposit and loan services to foreign residents and institutions, while being exempted from the Fed's reserve requirements and some state and local income taxes. 

BREAKING DOWN 'International Banking Facility - IBF'

Banks are permitted to conduct International Banking Facility (IBF) activities from their existing offices, but must keep separate books for IBF business. The Federal Reserve approved the establishment of IBFs and exempted them from its reserve requirements in 1981. IBF operations remain under the jurisdiction of the Federal Reserve and other state and federal regulators. They are not insured by the Federal Deposit Insurance Corporation (FDIC).

Competition to attract IBF business has led some states, including New York and Florida, to offer them tax breaks. In Florida, for example, IBFs are exempt from state income tax and are allowed to deduct their losses.

Because of the exemptions they enjoy, IBFs enable U.S. banks and U.S.-based financial institutions to compete more effectively for overseas deposits and loans business in the eurocurrency markets.

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