International Banking Facilities Revisited

Michael Moffett, Arthur Stonehill

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

The creation of International Banking Facilities (IBFs) in 1981 was an attempt by U.S. banking regulators to allow U.S.‐based banks and their offshore customers to have access to the Euromarket in a U.S. political and legal jurisdiction, operating in a U.S. time zone. The expected benefits were as follows: 1. the cost of capital for U.S.‐based banks (both U.S. and foreign‐owned) and their offshore customers, particularly multinational firms, would be reduced due to lower political risk, no reserve requirements, and no Federal Deposit Insurance Corporation requirements; 2. Banks could potentially reduce their operating costs to die extent that IBFs replaced offshore shell branches; 3. Additional bank employment would be created in the U.S.; 4. although IBFs would not be subject to U.S. Federal taxes, a geographical shift of bank assets to the U.S. might create a higher Federal tax revenue due to a reduction in foreign tax credit claimed by the banks. In retrospect the performance of IBFs has shown mixed results. With respect to cost of capital, the IBFs must have been cost effective because there has been an impressive growth in IBF assets and loans, coincident with a stagnation in the offshore bank shell branches. However, die largest benefit of this growdi has accrued to foreign‐owned IBFs. With respect to lower operating costs, the IBFs have not caused the offshore shell branches to close since they are needed to do business with U.S. residents. With respect to employment, bank employment in the U.S. has gone up marginally, although not nearly as much as originally predicted. The impact of IBFs on Federal tax revenues was not investigated in this study. Public policy impacts of IBF operations have also been less than expected in that IBFs have not eliminated the need for offshore shell‐branches in the Caribbean, although they have significantly stifled growth in these financial centers. The entrance of the Japanese Offshore Market in December 1986 and the potential that other countries may enter the competition could well have long term negative impacts on the growth potential of U.S. IBFs.

Original languageEnglish (US)
Pages (from-to)88-103
Number of pages16
JournalJournal of International Financial Management and Accounting
Volume1
Issue number1
DOIs
StatePublished - 1989
Externally publishedYes

Fingerprint

International banking
Shell
Tax revenues
Cost of capital
Assets
Operating costs
Loans
Residents
Financial centres
Public policy
Foreign tax credit
Policy impact
Jurisdiction
Tax
Stagnation
Multinational firms
Reserve requirements
Political risk
Banking
Deposit insurance

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Accounting
  • Finance

Cite this

International Banking Facilities Revisited. / Moffett, Michael; Stonehill, Arthur.

In: Journal of International Financial Management and Accounting, Vol. 1, No. 1, 1989, p. 88-103.

Research output: Contribution to journalArticle

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