In general, foreign branch banking is beneficial to all parties involved, as foreign countries obtain investment capital and U.S. financial services and U.S. companies reap the profitable rewards of foreign operations. Further, corporations may use foreign bank deposits as a means of minimizing U.S. tax consequences. Problems can arise, however, when tumultuous social and political events in countries where U.S. bank branches are located result in questions as to whether risk of political upheaval ("political risk") is borne by depositors or by the U.S. offices of the branch. Accordingly, banks have attempted to "ringfence" foreign deposits; to wall them off so that they are not payable in the U.S. The U.S. government and state governments have sought, in various ways, to "ringfence" foreign deposits as well, either by attempting to ensure that banks are not liable for the deposits or by mandating that deposits payable outside the U.S. are not, unlike deposits payable exclusively in the U.S., backed by the full faith and credit of the U.S. government.

Part II of this Article will review the cases that examine political risk and U.S. bank foreign branch deposits. Part III will review various solutions offered to this problem in the last three decades, including a rule issued by the FDIC in late 2013 aimed at addressing aspects of this very issue. Part IV will offer some conclusions regarding the allocation of political risk in foreign bank deposits.

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