What Is an In-House Bank? A Treasury Guide

An in-house bank (IHB) is a centralized treasury function that acts as a bank for a group's operating entities — giving them internal accounts, intercompany loans and deposits, payments and collections on behalf of, netting and internal FX. Instead of every subsidiary running its own external bank relationships, treasury runs an internal bank: the group's cash concentrates centrally, external accounts and fees shrink, and control and standardization move to one place.

What an in-house bank does

Think of treasury opening an account for each subsidiary — not at an external bank, but inside the group. Each entity has an internal current account with the IHB; its surplus cash is a deposit with the IHB, its funding need is a loan from the IHB, and much of what it used to do through external banks now flows through the internal bank. The group's real external cash concentrates (usually via physical pooling), while entities transact against their internal positions.

Core capabilities

• Internal accounts. Each entity holds one or more internal current accounts with the IHB, replacing external operating accounts.
• Intercompany lending and deposits. Surplus and deficit are managed as intercompany loans/deposits with the IHB, priced and documented at arm's length.
• Payments on behalf of (POBO). The IHB makes external payments for the entities from central accounts, so subsidiaries need far fewer external accounts.
• Collections on behalf of (COBO). Similarly, incoming funds are collected centrally and credited to the entity's internal account.
• Netting. Intercompany obligations are netted so only net positions settle externally, cutting payment volume and FX.
• Internal FX. Currency needs are offset internally where possible, reducing external FX trades.

The benefits

• Cash concentration and liquidity efficiency — the group's cash sits centrally and is used across entities instead of trapped in local accounts.
• Fewer external accounts and lower fees — POBO/COBO collapse many subsidiary accounts into a few central ones.
• Reduced external FX — internal offsetting and netting cut the volume of external currency trades.
• Centralized control and standardization — one set of processes, controls and visibility instead of dozens.
• Stronger governance — payments and funding run through a controlled central function.

In-house bank vs payment factory

They're related and often confused. A payment factory centralizes payment execution — one controlled, standardized place that makes the group's outgoing payments. An in-house bank is broader: it maintains internal accounts, does intercompany lending, netting and internal FX, and usually includes POBO/COBO. In practice a payment factory is often one capability within a fuller in-house-bank structure.

Prerequisites and what usually goes wrong

An in-house bank is powerful but not lightweight. It needs:

• A capable treasury system to run internal accounts, intercompany positions and POBO/COBO — this is not a spreadsheet exercise.
• An intercompany framework — arm's-length pricing, documentation, and handling of withholding tax and thin-capitalization rules.
• Tax and legal design — POBO/COBO, internal accounts and cross-border flows all have tax and regulatory implications that vary by country.
• Clean master data and clear ownership — internal accounts, entities and mappings must be right, and someone must own them.

Where it goes wrong is almost always the same: treating it as a treasury-only initiative and underestimating the intercompany, tax and system requirements. Designed properly — with tax and legal in the room and a system that can actually run it — an in-house bank is one of the highest-leverage structures in corporate treasury. Designed casually, it becomes a standing question from your auditors and tax advisors.

Part of the Corporate Cash & Liquidity Management guide. See also physical vs notional cash pooling and cash positioning vs forecasting. The newsletter sends one finance-systems pattern every two weeks.