What is an in-house bank with POBO/COBO, and what benefits and risks does it bring?
A core Corporate Treasury interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
An in-house bank (IHB) centralizes banking functions so a treasury entity acts as a bank to the group's subsidiaries — running intercompany current accounts, internal funding, and netting. Payments-on-behalf-of (POBO) and collections-on-behalf-of (COBO) take it further: the IHB makes and receives external payments on behalf of subsidiaries through a small number of central accounts, with the subsidiary's position tracked via intercompany accounts rather than its own external bank accounts. Benefits: fewer external bank accounts (lower fees, simpler KYC), centralized liquidity and netting (less idle cash and external borrowing), standardized controls, and better visibility. Risks/challenges: it's operationally and legally complex — you must handle the legal validity of paying on another entity's behalf, transfer-pricing and intercompany interest, tax (deemed loans/withholding), regulatory and 'on-behalf-of' reconciliation, and concentration/operational risk if the central platform fails. So POBO/COBO is powerful for large groups but needs robust legal, tax, and control design.
WHAT INTERVIEWERS LISTEN FOR
- ✓IHB acts as an internal bank to subsidiaries (IC accounts, funding, netting)
- ✓POBO/COBO: central accounts pay/collect on behalf of subsidiaries
- ✓Benefits: fewer accounts, centralized liquidity, control, visibility
- ✓Risks: legal/tax/transfer-pricing complexity, concentration/operational risk
COMMON MISTAKES
- ✗Confusing an IHB with a real bank license
- ✗Ignoring tax/transfer-pricing of intercompany positions
- ✗Missing operational-concentration risk
Reading isn't the same as answering under pressure.
Interviewers don't hand you the model answer — you deliver yours on a clock. Practice this and 1,000+ questions with AI feedback on every answer.
RELATED QUESTIONS