Definition of Offshore Banking Unit (OBU)

shell branch owned by a nonresident bank in an international financial center that, by accepting deposits from foreign banks and other OBUs, makes loans in the Eurocurrency market, unrestricted by local monetary authorities or governments. An offshore banking unit cannot, however, take domestic deposits. Since the 1970s these financial units have sprung up in major European cities, the Mideast, Asia, and the Caribbean. The major offshore banking centers for U.S. banks are the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore, which offer favorable political, regulatory, and tax treatment. Since 1981, U.S. banks have been permitted many of these same advantages through International Banking Facilities, located in major U.S. financial centers.