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Offshore Banking
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

By popular usage, the establishment and operation of U.S. banks in such offshore "tax havens" as the Bahamas and the Cayman Islands.

Branches of member banks of the Federal Reserve System in the Bahamas and Cayman Islands as of year-end 1979 numbered 150, against 142 at year-end 1978, with reported total deposits of $63.9 billion as of year-end 1979, an increase of 33% compared to the $48.1 billion as of year-end 1978.

Amendment of Regulations D and Q by the Board of Governors of the Federal Reserve System, effective December 3, 1981, authorized the establishment in the U.S. of International banking facilities (IBFs) by U.S. depository institutions, Edge Act and agreement corporations, and branches and agencies of foreign banks located in the U.S. Under the rules adopted by the board of governors, an IBF may accept deposits from foreign residents (including banks) or from Regulation D and from the interest rate limitations of Regulation Q. IBFs are permitted to offer to foreign nonblank residents large-notice period prior to withdrawal of at least two business days. In addition, IBFs are permitted to offer overnight time deposits to foreign offices of U.S. depository institutions or foreign banks, to other IBFs, to foreign central banks, or to the institution establishing the IBF.  Funds raised by an IBF can be used only to extend credit to foreign residents, to other IBFs, or to the institution establishing the IBF.  Funds derived by an institution from its own IBF are subject to Eurocurrency reserve requirements.

The Board of Governors of the Federal Reserve System believed that the establishment of IBFs at U.S. banking offices would enhance the international competitive position of banking institutions located in the U.S. Parenthetically, establishment of the IBFs was considered to be a move to attract offshore banking business back to the U.S.  

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