An in-house bank acts much like a commercial bank, but is not a regulated or licensed financial institution. These banks offer a number of services, including inter-company lending and external payments. In-house banks can take deposits, manage inter-company loans, and make foreign currency payments. In-house banks are usually used by multi-national corporations in order to centrally manage the liquidity, foreign currency and interest rate risk.
When an in-house is established, subsidiaries or affiliates all hold accounts with the In-House bank. This avoids the need from having a separate bank account and increase the overall cash visibility to the organization. In-house banks lower costs by reducing the number of bank accounts that are needed, reduce transaction costs through the elimination of cross-border payments for internal transactions, and reduce the overall foreign exchange risk through centralized management. In the latter, treasury has the ability to aggregate and net before determining when to execute an FX transactions.
Multi-national corporations should consider establish an in-house bank not only to save money, but for better control. While it may seem intimidating, establishing an IHB can be simple.