BANKAMERICA INTERNATIONAL FINANCIAL CORPORATION
SAN FRANCISCO, CA, UNITED STATES 94104

Institution Type: Edge Corporation - Investment
Primary Federal Regulator: FRS Insurance: NOT APPLICABLE, NOT AVAILABLE, NOT INSURED
RSSD ID: 783871 FDIC Certificate #: 0
Routing Transit Number (RTN): 121900089

Activity: INTERNATIONAL TRADE FINANCING









Financial Data






























Financial data are not available.
https://www.ffiec.gov/nicpubweb/nicweb/InstitutionProfile.aspx?parId_rssd=783871&parDT_END=99991231





BANKAMERICA INTERNATIONAL FINANCIAL CORPORATION (783871) as of 12/31/2017

Hierarchy report with the following institution types: Commercial Bank



3 record(s) with 3 unique institution(s) found. < Previous Page 1 Next >

Seq Num Name (RSSD ID) Parent Seq Num City State / Country Entity Type
1 * BANKAMERICA INTERNATIONAL FINANCIAL CORPORATION (783871) SAN FRANCISCO CA Edge Corporation - Investment
2 -* BANK OF AMERICA MALAYSIA BERHAD (2288129) 1 KUALA LUMPUR MALAYSIA (OTHER) International Bank of U.S. Depository - Edge or Trust Co.
3 -* BANK OF AMERICA MEXICO, S.A., INSTITUCION DE BANCA MULTIPLE (2337362) 1 MEXICO CITY MEXICO International Bank of U.S. Depository - Edge or Trust Co.

Page 1 of 1

* Institutions Matching Selection Rule
+ For purposes of Regulation Y, the top-tier reporter's ownership level in this banking organization does not meet the definition of "control"; however, the ownership level does meet the FR Y-10 reportability criteria as this banking relationship is regulated by the Federal Reserve.
^ Although this relationship is not governed by U.S. banking statutes, it is included because it is of interest to the Federal Reserve.
https://www.ffiec.gov/nicpubweb/nicweb/OrgHierarchySearchForm.aspx?parID_RSSD=783871&parDT_END=99991231
 

U.S. v. BankAmerica Corp., et al.

Stipulation and Final Judgment ( September 9, 1976)
Competitive Impact Statement (May 7, 1976)
Complaint (October 6, 1975)
Case Open Date:

Monday, October 6, 1975

Case Name:
United States v. BankAmerica Corp., Bank of America National Trust and Savings Association, Bankers Trust New York Corp., Bankers Trust Co., The Prudential Insurance Co. of America, E. Hornsby Wasson and Paul A. Gorman

Case Type:
Civil Merger
Case Violation:
Interlocking Directorates and Officers

Industry Code:
State Banks, Federal Reserve
Federal Savings & Loan Associations
Misc. Business Credit Institutions
Real Estate Credit

Case Documents:
https://www.justice.gov/atr/case-document/file/936571/download

Stipulation and Final Judgment

Competitive Impact Statement

Complaint

Updated June 16, 2017

Search Antitrust Division
Comment on Division Cases(link sends e-mail)
File an NCRPA Notification
Report Anticompetitive Conduct After a Natural Disaster
Report Antitrust Violations
https://www.justice.gov/atr/case/us-v-bankamerica-corp-et-al

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
UNITED STATES OF AMERICA, Plaintiff, v. BANKAMERICA CORPORATION; BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; BANKERS TRUST NEW YORK CORPO-RATION; BANKERS TRUST COMPANY; THE PRUDENTIAL INSURANCE COMPANY OF AMERICA; E. HORNSBY WASSON; and PAUL A. GORMAN, Defendants.

Civil Action No. 75-2109
RFP Filed: May 7, 1976
Entered: Sept. 9. 1976
FINAL JUDGMENT
Plaintiff, United States of America, having filed its complaint herein on October 6, 1975, and defendant, E. Hornsby Wasson, havi11g appeared by his attorneys, and plaintiff and the aforesaid defendant, by their respective attorneys, having consented to the entry of this Final Judgment without trial or adjudication of any issue of law or fact herein and without this Final Judgment constituting evidence or admission by any party with respect to any issue of law or fact herein;
adjudication of any issue of fact or law herein, and upon the consent of the parties hereto, it is hereby, ORDERED, ADJUDGED, AND DECREED:

I This Court has jurisdiction over the subject matter and the parties consenting hereto. The complaint states a claim upon which relief may be granted under 8 of the Act of Congress of October 15, 1914 (15 u.s.c. §19), as amended, commonly known as the Clayton Act.

II Defendant, E. Hornsby Wasson, is enjoined and restrained from serving as a director of BankAmerica and Bank of America or any subsidiary thereof, while serving as a director of The Prudential Insurance Company of America or any of its subsid-iaries.

III Upon sixty (60) days written notice to the Attorney General, the defendant may file a petition in this Court for the abatement or modification of this Judgment if, after the date of the entry of this Judgment, an act of Congress or decision of the Supreme Court of the United States provides that director interlocks between banks and non-banks are exempt from the provisions of 15 u.s.c. §19, reading as follows: "

• No person at the same time shall be a director in any two or more corporations, any one of which has capital, surplus, and undivided profits aggregating more than $1,000,000 engaged in whole or in part in commerce, other than banks, banking associations, trust companies, and common carriers subject to the Act to regulate commerce, approved February fourth, eighteen hundred and eighty-seven, if such corporations are or shall have been theretofore, by virtue of their business and location of operation, competitors so that the elimination of competition by agreement between them would constitute a violation of any of the provisions of any of the antitrust laws ..." "
2
IV Jurisdiction is retained by this Court for the purpose of enabling any of the parties to this Final Judgment to apply to this Court at any time for such further orders and directions as may be necessary or appropriate for the construction or modification of any of the provisions thereof, for the enforce-ment of compliance therewith, and for the punishment of via-lations thereof. '.I'~1is Final Judgment shall be in full force and effect for a period of twenty (20) years from the date of entry of this Final Judgment and therea£ter will have no further force and effect. v Entry of this Final Judgment is in the public interest.

UNITED STATES DISTRICT JUDGE

https://www.justice.gov/atr/case-document/file/936571/download
https://www.justice.gov/atr/case-document/file/937226/download

 

Edge act and agreement corporations:
mediums for international banking

Neil Pinsky

Expansion of the international activities of
U.S. banks has been one of the most
remarkable developments in American banking
over the past 20 years.' The most "visible"
sign of this expansion has been the growth of
foreign assets of U.S. banks. From just over $6
billion in 1957, these assets had increased to
almost $350 billion at the end of 1977. Less visible
but equally remarkable has been the institutional
adaptability of banks, which
facilitated the expansion.

One sign of this adaptability has been the
rapid growth in recent years of special corporate
entities known as Edge Act and agreement
corporations. Authorized by federal
banking laws as channels for conducting international
activities, these corporations increased
in number from 38 in 1964 to 122 in
1977. By the end of 1976, the last year for
which detailed figures are available, their
total assets reached $11.6 billion.

Initially, Edge Act and agreement corporations
made it possible for U.S. banks to
engage in international banking and finance
activities from which they had been barred. In
recent years, these corporations have
become the main vehicle for banks to establish
international banking offices in financial
centers outside their home states.

Legal foundations
Banks in the United States were slow to
engage in international activities. Even
though international trade and foreign in-

1 For a historical perspective on this development,
see "Banking goes international," Business Conditions,
Federal Reserve Bank of Chicago, April 1967. For a more
recent survey, see "International banking: Part I,"
Business Conditions, Federal Reserve Bank of Chicago,
September 1975.

flows of capital had always been integral to
the country's economic development, the
provision of financial and banking services
that typically underlie such transactions
remained in the hands of European banks.

Much of this was due to the strong
domestic orientation of most U.S. banks. In
part, however, it was also due to the legal
restrictions the government placed on the international
activities of banks. Until 1913,
national banks were barred from financing
foreign trade through bankers' acceptances.

They were also barred from establishing
branches overseas.

At the turn of the century, as the United
States was becoming a major industrial
power, attitudes toward international banking
began to change. In 1913, the Federal
Reserve Act lowered the legal barriers to participation
in international banking by national
banks. National banks with $1 million in
capital and surplus could establish branches
in foreign countries, subject to approval of
the Federal Reserve Board, ". . . for the
furtherance of the foreign commerce of the
United States, and to act, if required to do so,
as fiscal agents of the United States."

2
Support for the legislation came from the
belief that expansion of the authority of banks
to conduct business abroad would help in the
promotion of U.S. exports and the extension
of credit to European governments.

Over the next three years, only one
bank—one of the country's largest—took
advantage of the new authority. The costs and
risks of expanding abroad were apparently
perceived as too great for any but the largest
banks to bear alone. To broaden the base of
2The same authority was extended in 1933 to include
state banks that were members of the Federal Reserve.


Federal Reserve Bank of Chicago

banks that might be willing to engage in international
banking, the Federal Reserve Act was
amended in 1916 to allow national banks with
capital of $1 million or more to invest, individually
or together with other banks, up to
10 percent of their capital and surplus in institutions
chartered by state banking
authorities for the sole purpose of conducting
international banking business. This authority
required that the institution enter into an
agreement with the Federal Reserve Board to
observe any restrictions that might be imposed.

These institutions became known as
agreement corporations.
Despite the liberal terms of the
charters—there is no minimum required
capitalization, for example, and no restriction
on the nationalities of owners or directors of
the corporations—only three agreement corporations
were chartered over the next two
years.

In a further effort to increase the international
activities of American banks, the
Federal Reserve Act was amended again in
1919 to allow the Federal Reserve Board to
charter corporations to engage in international
banking. The amendment was called
the Edge Act, after its sponsor, Senator Walter
Edge of New Jersey, and corporations
chartered under the act became known as
Edge Act corporations, or simply as Edges.

The International Banking Act of 1978,
which was recently enacted, contains
significant revisions to the Edge Act. This
legislation recognizes the need to improve
the competitive position of Edges relative to
foreign banks in the United States and
elsewhere, end discrimination against the
ownership of Edges by foreign-owned banking
institutions, and foster the ownership of
Edge Act corporations by regional and smaller
banks throughout the United States.

The expansion and increased competition in international
banking that are expected should
promote international trade, especially U.S.
exports, by bringing international trade financing
opportunities to small as well as large
farms and businesses.

To facilitate these objectives, the section
of the 1978 legislation pertaining to Edges
26 Economic Perspectives
L government and other
At net book value. debt securities $0.04
cash and due
from banks
$5.4
liabilities on
acceptances outstanding
other liabilities
eliminates or modifies many of the restrictive
provisions of the original Edge Act and requires
the Federal Reserve Board to revise its
regulation of Edges.
Nature of operations
Edge Act and agreement corporations
can engage in an array of international banking
and financing activities, including trading
in foreign currencies, foreign lending, acceptance
financing, and foreign collections. They
can accept demand and time deposits (but
not savings deposits) in the United States as
long as the deposits are related to identifiable
international transactions.

They can accept deposits from foreigners, including foreign
governments, and businesses operating
primarily abroad, provided the deposits are
not used to pay purely domestic expenses.
Originally, the main advantage of an
Edge or an agreement corporation to its
parent bank was its unique authority to make
equity investments in foreign corporations.
While U.S. banks could not ordinarily make
equity investments, with an Edge or agreement
corporation, they could legally undertake
such investments in foreign corporations.

This ability put U.S. banks in an improved
competitive position relative to banks
in other countries, which were typically permitted
by their laws to make such investments.

The ability of Edges and agreement
corporations to provide medium and
long-term debt financing as well as equity
financing gave banks a useful complement to
3Edges have the "general consent" of the Board of
Governors of the Federal Reserve System to make an
equity investment of up to $500,000 in foreign corporations
not doing business in the United States, provided
they hold no more than 25 percent of the voting
shares of the corporation. Otherwise, prior consent of
the board is required, unless the purchase of the stock is
necessary to prevent loss on an existing loan.

Without specific approval of the Board of Governors, no more
than 10 percent of an Edge's capital and surplus can be invested
in a corporation other than a bank and no more
than 15 percent can be invested in a banking corporation.

Edge Act and agreement corporations composite
balance sheet, December 31, 1976
Total assets Total liabilities and capital
$11.6 billion $11.6 billion
Federal Reserve Bank of Chicago 27
their primary role as short-term lenders. This
was particularly true in the case of corporate
customers in countries with poorly
developed capital markets.

4
The authority to make equity investments
was especially important when Edges and
agreement corporations were the only means
U.S. banks had of investing in foreign banks in
countries where they were barred from establishing
branches.

In 1966, however, the Federal Reserve Act was amended to allow
national banks, with approval of the Federal
Reserve Board, to invest directly in foreign
banks doing no substantive business in the
United States.

The advantage of Edges and agreement
corporations as a unique channel for equity
investment by American banks was further
diminished in 1970, when the Bank Holding
Company Act was amended to allow bank
holding companies to make the same equity
investments in foreign corporations that
Edges could make.

Edges and agreement corporations,
however, still have one investment advantage
over other forms of international banking
organization. Since they are exempt from
some of the restrictions on loans to foreign affiliates
and investments in them, Edge
corporzations are now commonly used by banks
as "holding companies" for their foreign subsidiaries
and affiliated companies. Edges
engaged in equity investments are commonly
called investment Edges. They are usually
located in the same city as their parent bank.
Edge and agreement corporations can be
located anywhere in the United States.

This is an important advantage, for banks themselves
are prohibited from establishing branches
outside their own state, and they are not
usually allowed to own banks in other states.

4 Some Edge Act corporation investments have been
a hybrid of debt and equity—loans that can be converted
into stock at the discretion of the Edge or loans that give
the Edge the option of buying an equity interest in the
borrowing corporation. Through such hybrid investments
by their subsidiaries, banks could increase
their return on loans to foreign corporations, especially
in the early stages of a customer's corporate
development.

Therefore, Edge and agreement corporations
can serve as a vehicle for banks to
establish offices outside their home state for
purposes of engaging in international banking.
With offices in other cities, banks can
better serve the trade financing and other international
banking needs of their customers.

Although they cannot make domestic loans,
their presence in other financial centers can
be helpful to parent banks in competing for
domestic business far from their home offices.

Most Edges located outside the parent's
home state primarily engage in international
banking rather than in investing in foreign
corporations.

Patterns of growth
Despite the advantages of Edge Act and
agreement corporations, banks were slow to
make use of them. Only 20 Edge and agreement
corporations were chartered by 1932.

Since they were buffeted by the same forces
that caused some 15,000 bank failures in the
United States between 1920 and 1933, only
five were still in operation by 1934.

Growth of international banking was
stymied by the worldwide recession in the
thirties, and the war and reconstruction in the
forties.

Only two Edges and one agreement

Total assets of Edge Act and
agreement corporations almost
doubled in four years
bil ion dollars
12 —
as of December 31
10
8
6
4
2
0
1972 1973 1974 1975 1976
28 Economic Perspectives
corporation were chartered between 1932
and 1956.

By the late fifties, however, with world
trade expanding and American business increasing
its investment abroad, the demand
for internationalbanking services increased.

Edge Act and agreement corporations were
channels through which American banks
could meet the demand.

Some banks used Edges to complement
the operations of branches overseas and international
departments at their head offices.

Others used them as a means of establishing a
agrempent resence in New York, the country's main
corporations o
Federal Reserve Dist
Year
estab-
Name Parent bank Location lished Capital
(thousands)
,
American Natl. American Natl. Bank Chicago 1968 S 2,341
Overseas Corp. & Tr. Co. (Chicago)

Bank of America Bank of America NT Chicago 1971 9,481
Intl. (Chicago) & SA (San Francisco)

Bankers Trust Intl. Bankers Trust Co. Chicago 1974 3,100
(Midwest) Corp. (New York)

Chase Bank Intl. Chase Manhattan Chicago 1974 2,792
(Chicago) Bank NA (N.Y.)

Chemical Bank Chemical Bank Chicago 1974 2,281
Intl. (Chicago) (New York)

Citibank Intl. Citicorp Chicago 1972 2,359
(Chicago) (New York)

Continental Intl. Continental Ill. Natl. Chicago 1962 34,406
Finance Corp. Bank & Tr. (Chgo.)

Crocker Bank Crocker Natl. Bank Chicago 1973 4,717
Intl. (Chicago) (San Francisco)

European-American 2 European American Chicago 1977 Not
(Chicago) Corp. Bancorp (N. Y.) open

Exchange-Israel2 Exchange Natl. Chicago 1973 33
Corp. (Chicago) Bank (Chicago)

First Chicago First National Chicago 1962 23,122
Intl., Fin. Corp. Bank (Chicago)

Detroit Bank and Detroit Bank & Detroit 1969 20,897'

Trust Intl. Trust Co.
Intl. Bank
of Detroit

National Bankof Detroit Detroit 1963 26,072

Manufacturers-Detroit Manufacturers Natl. Detroit 1963 4,387
Intl. Corp. Bank (Detroit)

Indiana Natl. Indiana Natl. Bank Indian- 1971 2,410

Overseas Corp. (Indianapolis) apolis
'December 31, 1976.

2Agreement corporation.

'Exchange-Israel Corporation is an inactive but chartered agreement corporation.

'total consolidated capital for home office and foreign branches.

Federal Reserve Bank of Chicago 29

Edge Act and agreement corporations of banks domiciled in
the Seventh Federal Reserve District
(December 31, 1977)
Year
estab-
. Name Parent bank Location lished Capital
(thousands)'

Allied Bank2 American Fletcher New York 1968 $42,947
Intl. Natl. Bank & Trust

Michigan Natl. Bank
of Lansing
American Natl. American Natl. Bank Chicago 1968 2,341

Overseas Corp. & Tr. Co.
Continental Bank Continental Ill. Natl. New York 1962 36,879

Intl. Bank & Tr. Co.
Continental Bank Continental III. Natl. Los 1972 11,116

Intl. (Pacific) Bank & Tr. Co. Angeles
Continental Bank Continental III. Natl. Houston 1973 5,312

Intl. (Texas) Bank & Tr. Co.
Continental Intl. Continental III. Natl. Chicago 1962 34,406

Finance Corp. Bank & Tr. Co.
Detroit Bank & Tr. Detroit Bank & Detroit 1969 20,8972

Intl. Trust Company
Exchange-Israel' Exchange Natl. Chicago 1973 3
First Chicago Intl. First Natl. Bank New York 1962 12,523

Banking Corp. of Chicago
First Chicago Intl. First Natl. Bank Chicago 1962 23,122

Finance Corp. of Chicago
First Chicago Intl. First Natl. Bank Los 1973 5,409

(Los Angeles) of Chicago Angeles
First Chicago Intl. First Natl. Bank San 1973 5,933

(San Francisco) of Chicago Francisco
First Wisconsin First Wisconsin Natl. New York 1972 2,532

Intl. Bank Bank Corp.
Harris Bank Harris Trust & New York 1971 5,517

Intl. Corp. Savings Bank
Indiana Natl. Indiana Natl. Indian- 1971 2,410

Overseas Corp. Bank apolis
Manufacturers-Detroit Manufacturers Detroit 1963 4,387

Intl. Corp. Natl. Bank

Intl. Bank Natl. Bank Detroit 1963 26,072

of Detroit of Detroit
Northern Trust Northern Trust Co. Miami 1974 2,505

Interamerican Bk.
Northern Trust Intl. Northern Trust Co. New York 1968 6,702

Banking Corp.
'December 31, 1976.
;Allied Bank International is owned by 18 regional banks, including American Fletcher National Bank
(Indianapolis) and Trust Company and Michigan National Bank of Lansing.

, Total consolidated capital for home office and foreign branches.
'Exchange-Israel Corporation is an inactive but chartered agreement corporation.
30 Economic Perspectives
center for international finance. By 1966,
there were 36 Edge Act corporations, 18 of
them in New York.

In the late sixties and early seventies,
there was an apparent movement toward
decentralization of international activities.

In recognition of the growing importance of
cities other than New York as international
banking centers, banks began opening Edge
Act and agreement corporations in financial
centers across the country.

There were 116 Edges and six agreement corporations last
year, and their dispersal across the country
allowed banks to offer an array of international
banking services nationwide.

Thirtyeight were in New York. Other heavy concentrations
were in Los Angeles (12), Chicago (11), Miami (ten), and Houston (nine).

Edges in the Seventh District
There are 13 Edge and 2 agreement corporations
operating in the Seventh Federal
Reserve District. 5 That number, the largest in
any district except the Second (New York) and
Twelfth (San Francisco), reflects both the
significance of Seventh District states in world
trade and the importance of Chicago as an international
financial center.

Thirteen banks headquartered in the
Seventh District own interests in 19 international
banking subsidiaries-18 Edges and
one agreement corporation. Of these, eight
are in the district, six are in New York, and two
are in Los Angeles. The rest are in San Francisco,
Houston, and Miami.

The establishment of both the Edge cor-
5 Onebanking services increased.
Edge Act and agreement corporations were
channels through which American banks
could meet the demand.

Some banks used Edges to complement
the operations of branches overseas and international
departments at their head offices.

Others used them as a means of establishing a
agrempent resence in New York, the country's main
corporations o
Federal Reserve Dist
Year
estab-
Name Parent bank Location lished Capital
(thousands),
American Natl. American Natl. Bank Chicago 1968 S 2,341
Overseas Corp. & Tr. Co. (Chicago)

Bank of America Bank of America NT Chicago 1971 9,481
Intl. (Chicago) & SA (San Francisco)

Bankers Trust Intl. Bankers Trust Co. Chicago 1974 3,100
(Midwest) Corp. (New York)

Chase Bank Intl. Chase Manhattan Chicago 1974 2,792
(Chicago) Bank NA (N.Y.)

Chemical Bank Chemical Bank Chicago 1974 2,281
Intl. (Chicago) (New York)

Citibank Intl. Citicorp Chicago 1972 2,359
(Chicago) (New York)

Continental Intl. Continental Ill. Natl. Chicago 1962 34,406
Finance Corp. Bank & Tr. (Chgo.)

Crocker Bank Crocker Natl. Bank Chicago 1973 4,717
Intl. (Chicago) (San Francisco)

European-American 2 European American Chicago 1977 Not
(Chicago) Corp. Bancorp (N. Y.) open

Exchange-Israel2 Exchange Natl. Chicago 1973 33
Corp. (Chicago) Bank (Chicago)

First Chicago First National Chicago 1962 23,122
Intl., Fin. Corp. Bank (Chicago)

Detroit Bank and Detroit Bank & Detroit 1969 20,897'
Trust Intl. Trust Co.
Intl. Bank
of Detroit
National Bank
of Detroit
Detroit 1963 26,072

Manufacturers-Detroit Manufacturers Natl. Detroit 1963 4,387
Intl. Corp. Bank (Detroit)

Indiana Natl. Indiana Natl. Bank Indian- 1971 2,410

Overseas Corp. (Indianapolis) apolis
'December 31, 1976.

2Agreement corporation.
'Exchange-Israel Corporation is an inactive but chartered agreement corporation.

'total consolidated capital for home office and foreign branches.

Federal Reserve Bank of Chicago 29
Edge Act and agreement corporations of banks domiciled in
the Seventh Federal Reserve District
(December 31, 1977)

Year
estab-
. Name Parent bank Location lished Capital
(thousands)'

Allied Bank2 American Fletcher New York 1968 $42,947
Intl. Natl. Bank & Trust
Michigan Natl. Bank
of Lansing
American Natl. American Natl. Bank Chicago 1968 2,341

Overseas Corp. & Tr. Co.
Continental Bank Continental Ill. Natl. New York 1962 36,879

Intl. Bank & Tr. Co.
Continental Bank Continental III. Natl. Los 1972 11,116

Intl. (Pacific) Bank & Tr. Co. Angeles
Continental Bank Continental III. Natl. Houston 1973 5,312

Intl. (Texas) Bank & Tr. Co.
Continental Intl. Continental III. Natl. Chicago 1962 34,406

Finance Corp. Bank & Tr. Co.
Detroit Bank & Tr. Detroit Bank & Detroit 1969 20,8972

Intl. Trust Company
Exchange-Israel' Exchange Natl. Chicago 1973 3

First Chicago Intl. First Natl. Bank New York 1962 12,523

Banking Corp. of Chicago
First Chicago Intl. First Natl. Bank Chicago 1962 23,122

Finance Corp. of Chicago
First Chicago Intl. First Natl. Bank Los 1973 5,409

(Los Angeles) of Chicago Angeles
First Chicago Intl. First Natl. Bank San 1973 5,933

(San Francisco) of Chicago Francisco
First Wisconsin First Wisconsin Natl. New York 1972 2,532

Intl. Bank Bank Corp.
Harris Bank Harris Trust & New York 1971 5,517

Intl. Corp. Savings Bank
Indiana Natl. Indiana Natl. Indian- 1971 2,410

Overseas Corp. Bank apolis
Manufacturers-Detroit Manufacturers Detroit 1963 4,387

Intl. Corp. Natl. Bank
Intl. Bank Natl. Bank Detroit 1963 26,072

of Detroit of Detroit
Northern Trust Northern Trust Co. Miami 1974 2,505

Interamerican Bk.
Northern Trust Intl. Northern Trust Co. New York 1968 6,702

Banking Corp.
'December 31, 1976.
;Allied Bank International is owned by 18 regional banks, including American Fletcher National Bank (Indianapolis) and Trust Company and Michigan National Bank of Lansing.
, Total consolidated capital for home office and foreign branches.

'Exchange-Israel Corporation is an inactive but chartered agreement corporation.

30 Economic Perspectives
center for international finance.

By 1966,there were 36 Edge Act corporations, 18 of
them in New York.

In the late sixties and early seventies,
there was an apparent movement toward
decentralization of international activities.

In recognition of the growing importance of
cities other than New York as international
banking centers, banks began opening Edge
Act and agreement corporations in financial
centers across the country.

There were 116 Edges and six agreement corporations last
year, and their dispersal across the country
allowed banks to offer an array of international
banking services nationwide.

Thirtyeight were in New York. Other heavy concentrations
were in Los Angeles (12), Chicago (11), Miami (ten), and Houston (nine).

Edges in the Seventh District

There are 13 Edge and 2 agreement corporations
operating in the Seventh Federal
Reserve District. 5 That number, the largest in
any district except the Second (New York) and
Twelfth (San Francisco), reflects both the
significance of Seventh District states in world
trade and the importance of Chicago as an international
financial center.

Thirteen banks headquartered in the
Seventh District own interests in 19 international
banking subsidiaries-18 Edges and
one agreement corporation.

Of these, eight are in the district, six are in New York, and two are in Los Angeles. The rest are in San Francisco,
Houston, and Miami.

The establishment of both the Edge cor-

5 One of the two agreement corporations, European-
American Corporation (Chicago), is a subsidiary of a
foreign-owned bank based in New York State.

porations in the district and Edge subsidiaries
of banks headquartered in the district reflects
the pattern of growth in international banking
corporations nationwide.

Banks in the district established ten Edges in the sixties. Of
these, four were "banking" Edges in New
York. The rest were investment Edges in each
bank's home city.

In the seventies, five of the nine international
banking subsidiaries established by
the banks in the Seventh District were Edges
located outside New York.

In 1971, the California-based Bank of America opened an
Edge in Chicago.

That was the first Edge in the district set up by a bank from outside the district.

Others followed shortly. Six banks from outside the district have Edges in Chicago,and one has an agreement corporation.

Summary and conclusions
Edge Act and agreement corporations
have added an important dimension to the
expansion of international banking services.

Their growth over the past 20 years attests to
the advantages they offer banks. The license
of Edges to make equity investments in
foreign corporations and their exemption
from some of the restrictions on banks makes
them an attractive vehicle for holding a bank's
foreign subsidiaries.

The ability of Edges to establish
offices in states other than that of the
parent bank makes it possible for banks to
serve the international banking needs of their
customers nationwide.

Because of these advantages, and revised
regulations that will result from the International
Banking Act of 1978, Edge Act and
agreement corporations can be expected to
continue playing an important role in the international
activities of U.S. banks.

Federal Reserve Bank of Chicago

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THE EDGE ACT: ITS PLACE IN THE
EVOLUTION OF INTERNATIONAL
BANKING IN THE UNITED STATES
John J. McGuire*
INTRODUCTION
At the end of 1956 there were seven Edge Act and Agreement corporations.
As of June 30, 1970, there were 68 such organizations. The
law governing their operations was passed in 1919. Why has there been
such a phenomenal growth in recent years of a type of organization that
was authorized by law 52 years ago (55 years ago in the case of Agreement
corporations) ? The answer to this question requires an examination
of the history of international banking in this country going back to the
turn of the century.

Briefly, an Edge Act corporation is a* bank or finance company
established for the purpose of engaging in international trade and finance.
It is chartered by the Board of Governors of the Federal Reserve
System. An Agreement corporation is chartered under state law and
is required to operate in accordance with the same rules and regulations
prescribed by the Board of Governors for Edge Act corporations. Such
corporations, if engaged in banking, perform essentially the same functions
as the international department of commercial banks. There are,
however, several unique features of Edge Act and Agreement corporations.

First, this is a method by which a subsidiary may be established
in a state other than that in which the parent bank is chartered. This
permits banks to operate in important international trade centers such
as New York, San Francisco, and more recently, Miami.

A second feature of Edge Act corporations is that they may participate
in equity in foreign corporations. This is usually done as an
adjunct to the process of financing a new business venture and is usually
in combination with long-term debt financing. A majority of the Edge
Act corporations engage in this activity.
LAWYER OF THE AMERICAS
A third feature is that Edge Act corporations are permitted a considerably
greater degree of latitude in conducting their business than
are ordinary banks. Wide and flexible powers are necessary in order
that local needs in various countries can be provided for.
A fourth feature is that Edge Act corporations may not engage in
any activity in the United States that is not incidental to international
trade. The concept is to prevent them from competing with local banks
for domestic business. This feature and the legislation governing Edge
Act corporations, which will be examined in this paper, embody two
broad considerations. First, the purpose of Edge Act corporations is to
facilitate and expand the foreign trade of the United States. Second,
the wide powers granted are subject to limitations and to supervision by
the Board of Governors of the Federal Reserve System. This public
control preserves geographic limitations on bank operations and maintains
the traditional separation of banking and commercial activity in
the United States.'
HISTORY OF INTERNATIONAL BANKING IN THE
UNITED STATES2
International Banking Before the Edge Act
Foreign operations of United States commercial banks can be
traced
back to 1887. However, between 1887 and 1914, " . . . United States
banks played a minor role in foreign financing . . . , and most of our
trade was financed in sterling by London banks."3 Only since the turn
of the century had the United States begun to participate more extensively
in foreign commerce. With this growth came a need for banking institutions
to finance international trade. Prior to the passage of the Federal
Reserve Act of 1913, United States banking was severely limited by the
legal restrictions imposed on its operations.
The legal restrictions had not been dealt with earlier since there
was no significant demand for United States participation in international
banking. Foreign banks, specifically those of England, France,
Germany, and Holland, were well-established in international trade. The
United States had been a debtor nation. American banks were kept busy
just meeting the demand of domestic trade. All these factors prevented
the development of a discount market for bankers' acceptances in this
country.
The condition of United States banking in international commerce
was summed up in 1910 by the National Monetary Commission as follows:
THE EDGE ACT 429
*.. we have no American banking institutions in foreign countries.
The organization of such branches is necessary to the development
of our foreign trade. 4
Banking Legislation Before the Edge Act
Until the passage of the Federal Reserve Act in 1913, there was no
specific legal authorization for international banking, and there were
some legal restrictions against it. An incorporated bank had traditionally
been required to operate under either federal or state laws. Prior to 1913
branch banking was forbidden to national banks. Most states also for.
bade branch banking.
Further restrictions prohibited national banks from accepting bills
of exchange or drafts and thereby prevented them from issuing letters
of credit. This effectively prevented national banks from serving the
financing needs of customers in the area of international trade. New
York, Connecticut, and Massachusetts permitted their banks to accept
drafts thus enabling them to serve foreign commerce free from national
banks competition.
Federal Reserve Act of 1913
The first legal breakthrough for international banking came with
the passage of the Federal Reserve Act in 1913.
The Federal Reserve Act, as originally enacted in 1913, rectified
what were then considered to be the two major deficiencies in the
powers of national banks to conduct foreign operations. First, in
section 13 of the Act, member banks were authorized to accept
drafts or bills of exchange drawn on them . .. . Secondly, in section
25 of the Act, authority was provided for the establishment by national
banks with a capital and surplus of $1 million or more of
branches in foreign countries or dependencies or insular possessions
of the United States subject to the consent of the Board of Governors
of the Federal Reserve System.5
Despite the new powers afforded national banks, foreign expansion
of American banking was very slow in coming. Competition from Euro.
pean banks and discrimination against the dollar in some areas hindered
American banks trying to break into the international arena. This situa.
lion, combined with a fear among some that the $1,000,000 in capital
and surplus requirement would cause American foreign banking to be
monopolized by a few powerful banks, led to a study by the Federal
430 LAWYER OF THE AMERICAS
Reserve Board (name changed to Board of Governors of the Federal
Reserve System in 1935).
1916 Amendment to Section 25 of the Federal Reserve Act
The Federal Reserve Board study and debate in Senate committees
led to the development of the second major piece of legislation involving
foreign banking. In 1916 Section 25 of the Federal Reserve Act was
amended. This authorized national banks with capital and surplus of
$1 million or more to establish branches in foreign countries for the
benefit of American foreign trade and/or to invest an amount up to ten
percent of their capital and surplus in banks or corporations chartered
under either federal or state law and engaged in foreign banking. No
statutory authority for federal chartering of foreign bank corporations
was established. Any bank taking advantage of these provisions was required
to enter into an agreement with the Federal Reserve Board to conduct
its operations in accordance with the manner prescribed by the
Board. This legislation gave rise to the so-called "Agreement Corporation".
"The purpose of the amendment was to enable national banks to invest
in existing State corporations as a means of facilitating the development
of their foreign business."'6 This was intended to help counteract
the competitive forces working against American foreign banking. The
fear of monopoly was also alleviated by this amendment. It was believed
that:
The proposed amendment would enable a number of banks in the
United States, unable alone to enter the field of foreign banking, to
join in the establishment of a bank or banks to do this business ...7.
Among the powers granted to Agreement corporations but normally
prohibited to American banks was the right to issue notes in foreign
countries where such activity was legal. This is only one example of
the much wider latitude permitted American banks engaged in foreign
banking. Further examples of this latitude will be seen in the provisions
of the Edge Act and the regulations implementing it.
September 17, 1919 Amendment to the Federal Reserve Act
Despite the 1913 and 1916 legislation, the financial needs of American
business were still not being met on the international front. This,
combined with the extraordinary demand in Europe for American products
following the First World War, caused Congress to amend the FedTHE
EDCE ACT 431
era] Reserve Act again in 1919. This amendment authorized any national
bank to apply to the Federal Reserve Board for permission to invest any
amount not exceeding 5 percent of its paid-in capital and surplus in the
stock of corporations chartered under either federal or state law and
principally engaged in such phases of international or foreign financial
operations as may be necessary to facilitate the export of goods,
wares, or merchandise from the United States or any of its dependencies
or insular possessions to any foreign country.9
This authorization was valid until January 1, 1921, and was without regard
to the amount of capital and surplus of the applicant bank. Uniquely,
this legislation permitted national banks to invest in operations of a financial
nature other than banking. The September, 1919 amendment
specifically attempted to facilitate the longer term credit needs of foreign
trade. However, no corporations were formed under this legislation. This
was partially due to the passage of the Edge Act only three months later.
THE EDGE ACT
Even before debate on the September, 1919 amendment to the Federal
Reserve Act had ended and the Act been passed, the Edge Act was
being debated and developed. Senator Walter Edge of New Jersey,
sponsor of the Act carrying his name, wrote in his memoirs:
My next major legislative effort was the introduction on July 15,
1919, of an amendment to the Federal Reserve Act greatly liberalizing
credits on exportation of American products to any part of
the world. The fundamental purpose of this act was to provide
easier credit for foreign purchase of American goods. Shortly after
the close of World War I, all Europe wanted American products
but did not have the ready cash in dollar credits. The bill was finally
passed in December 1919 and approved by President Wilson the
day before Christmas. Advantage was immediately taken of it both
by international banking interests and by many local corporations
. . . . at that time our object was to give the financially prostrate
European nations long-term credits when we knew they could not
give us dollars. 9
Provisions and Purposes
Provisions of the Edge Act were designed to provide for the financial
needs of American foreign trade in a far more comprehensive manner
than any preceeding legislation. The Edge Act added Section 25(a)
432 LAWYER OF THE AMERICAS
to the Federal Reserve Act and provided for the chartering of corporations
by the Federal Reserve Board
for the purpose of engaging in international or foreign banking
or other international or foreign financial operations, or in banking
or other financial operations in a dependency or insular possession
of the United States, either directly or through the agency,
ownership or control of local institutions in foreign countries, or in
such dependencies or insular possessions .. .. 0
The Federal Reserve Board had been highly instrumental in developing
the Edge Act. A key idea was the provision for Federal incorporation
of foreign banking corporations. This was favored by the
Board for two reasons. First, the Board believed that the dual control
of foreign banking corporations by the Federal Reserve Board and the
banking department of a state was a potential source of embarrassment
and could restrict their operations. Second, the Board believed that
federal charters would enhance the banking corporations' ability to compete
in foreign countries.
The significant provisions of the Edge Act are as follows:
1. Corporations may be organized with the approval of the
Federal Reserve Board."'
2. Corporations must have a minimum capital of $2 million.
3. Control of the corporations must be in the hands of United
States citizens.
4. National banks may invest in such corporations up to an
amount which taken together with investments in corporations
operating under Section 25 of the Act does not exceed
10 percent.
5. Subject to certain limitations and approval of the Board
of Governors, the corporations may exercise banking powers,
maintain branches and agencies overseas, and acquire and
hold stock.
6. Such corporations may not conduct any business whatsoever
in the United States except that which is incidental to its
foreign business. 12
7. Such corpoi'ations may not invest in any corporation conducting
business in the United States except that which is
incidental to its foreign or international business.
THE EDGE ACT 433
8. The Board of Governors was given the power to prescribe
rules and regulations governing the operations of such corporations
and to examine them.
It will be helpful at this point to examine the differences between
Edge Act corporations and Agreement corporations. The significant differences
are as follows:
1. Edge Act corporations are federally chartered and subject
only to federal law and regulations. Agreement corporations
are state chartered and are subject to both state
laws and certain federal laws and regulations as set forth in
Regulation K of the Board of Governors.
2. Edge Act corporations are required to have a minimum
$2 million capitalization. There is no minimum for Agreement
corporations.
3. Majority ownership of Edge Act corporations must be in
the hands of United States citizens or legal entities controlled
by United States citizens, and all directors must be citizens.
Agreement corporations do not have such restrictions.
4. National and state bank members of the Federal Reserve
are authorized by statute to invest in Edge Act corporations.
Approval of the Board of Governors is required to invest in
Agreement corporations.
5. Edge Act corporations may be organized for either banking
or financing. Agreement corporations must be "principally
engaged in international or foreign banking." However, the
word "principally" allows them a certain latitude not available
to Edge Act corporations."
Amendments to Section 25 and Section 25(a) of the Federal Reserve Act
The record of early Edge Act corporations, as will be discussed
later in this paper, indicates that the Edge Act was not needed at the
time of its passage. If it was needed, it was not adequate as it did not
stimulate the activity envisioned by its framers. However, it would seem
that the Edge Act was and is most adequate to meet the needs of American
foreign banking and finance. No significant amendments have been
made to the Edge Act, Section 25(a) of the Federal Reserve Act, since
its enactment in 1919.
On the other hand, there have been two significant amendments to
Section 25 of the Federal Reserve Act. The first was in 1962 and arose
LAWYER OF THE AMERICAS
due to the restrictions on the operations of national banks and their
foreign branches which prevented them from engaging in certain activities
common in some countries in which they were located. The amendment
authorized the Board of Governors to permit the exercise by foreign
branches of such powers as may be usual in conjunction with
banking activities in the countries of location. The second amendment
was passed in 1966 and permits national banks directly and indirectly
to hold stock in foreign banks, as well as through Edge Act or Agreement
corporations. Both amendments tended to dilute somewhat the
value of the Edge Act for corporations engaged in banking by granting
similar powers to foreign branches of commercial banks.
Though the Edge Act itself has not been significantly amended since
its passage, there have been several revisions to Regulation K. This
Regulation implements the Edge Act and is issued by the Board of Governors
of the Federal Reserve System under its discretionary authority.
This authority is stated in part as follows:
Each corporation so organized shall have power, under such rules
and regulations as the Board of Governors of the Federal Reserve
System may prescribe: .... 14
This discretionary authority was confirmed in Apfel v. Mellon.1 5 Regulation
K, originally issued in March 1920, has been revised or amended
in 1924, 1927, 1928, 1930, 1943, 1945, 1954, 1957, 1963, 1967, 1968.
1969, and 1970. Early versions of Regulation K were essentially restatements
of Section 25(a) of the Federal Reserve Act. All of the substantial
revisions and amendments have been made during the past fourteen
years coinciding with the phenomenal growth in Edge Act activity. Several
important revisions will be discussed.
The first significant revision was made in 1957 to clarify some of
the rather vague limitations on the operations of Edge Act corporations
in the United States and to provide guidance regarding financing operations.
The revision established a distinction between corporations
engaged in banking and those engaged in financing. An Edge Act
corporation was not allowed to do both. The 1957 revision also spelled
out what activities could be engaged in by Edge Act corporations in
the United States. Such activity must be incidental to or for the purpose
of carrying out international business. Another change brought
Agreement corporations -under Regulation K thus eliminating the need
for individual agreements to be executed between the Board and each
such corporation.

THE EDGE ACT

The second significant revision was made to Regulation K in 1963.

This revision liberalized the old provisions and contained a statement
of national purpose which provided American banks and their subsidiaries
with powers sufficiently broad to enable them to compete effectively with
similar foreign-owned institutions and to afford to the United States
exporter and importer in particular- and to United States commerce,
industry, and agriculture in general-at all times a means
of financing foreign trade.16

This revision eliminated the distinction between banking and financing
corporations which had been delineated in the 1957 revision.

Any Edge Act corporation may now engage in either or both types of activity. This
revision authorized the merger of Edge Act corporations owned by the
same stockholder(s) but engaged in the different types of activity.

Despite the change, banks owning two corporations have in most cases continued
to operate both subsidiaries and to maintain the distinction between
them. An important reason for this is that accepting deposits would limit
a financing corporation's loans to, or investments in, one borrower to
10 percent of its capital and surplus as opposed to 50 percent otherwise.

The third noteworthy change was an amendment made in February,
1968. Until that time Edge Act corporations had been permitted to make
certain investments without the prior approval of the Board of Governors.
Specific consent had not been required when a stock acquisition:

1. was incidental to an extension of credit to the foreign corporation
(in making loans to foreign enterprises, Edge Act corporations
frequently acquire an equity participation);

2. consists of shares in a foreign bank, but does not bring the Edge
Act corporation's holdings of the voting stock of the foreign bank
to or above 25 percent; or

3. is "likely to further the development of United States foreign
commerce," provided the purchase of the stock of any one corporation
does not exceed $200,000.

Under the so-called "general consent" provision, these acquisitions could
be reported after the fact. The February 8, 1968 revision suspended this
privilege due to the serious balance of payments conditions. The privilege
was reinstated by another amendment in January, 1969.

LAWVER OF THE AMERICAS

Activity Under the Edge Act

Shortly after the Edge Act was passed, three corporations were
organized under its provisions. However, their operations were quite
limited. Two of them were liquidated in 1925 and the third was liquidated
in 1933. Between passage of the Edge Act and 1929 fifteen Agreement
corporations were chartered. All fifteen of these corporations had been
liquidated or absorbed by other banks by the early 1930's. In addition
to the two remaining Agreement corporations (both of which had been
chartered prior to the passage of the Edge Act), only two Agreement
and three Edge Act corporations were established between 1930 and
1956.

Among the first three corporations formed under the Edge Act was
the Federal International Banking Company. Senator Edge mentioned
that:

One outstanding example of the local effort was the combination
of a number of the small banks of seven southern states for the
purpose of extending credit in order to sell their rapidly mounting
surplus of cotton.' 7
This corporation was owned by one thousand commercial banks, had a
capital of $3,250,000, maintained its home office in New Orleans, and
had as its purpose the financing of the international movement of tobacco
and lumber as well as of cotton as mentioned by Senator Edge.
The First Federal Foreign Banking Association was organized to
finance foreign trade. It was owned by eleven commercial banks and
had a capital of $2,500,000. Both this corporation and the
Federal
International Banking Company were liquidated in 1925.
The First Federal Foreign Investment Trust was organized to invest
in foreign business in 1925. After changing its name in 1926 to the
First Federal Foreign Banking Corporation, it engaged in financing
foreign trade maintaining subsidiaries in Argentina, Brazil, and Switzer.
land as well as offices in several other countries. In 1933 it too was
liquidated.
Seventeen Agreement corporations were organized prior to 1930.
These corporations had capital of from $600,000 to $16,000,000. Most
engaged in general foreign banking. Several operated branches in various
foreign countries. One owned controlling interest in three foreign trading
companies. Another was formed to acquire stock of Banque Nationale de la
Republique d'Haiti.
THE EDGE ACT 437
Only two of the Agreement corporations survived beyond the early
1930's. One is the International Banking Corporation owned by the First
National City Bank of New York. It was originally chartered in 1901 in
Connecticut and has been involved in many diverse operations throughout
its existence. The other is the First of Boston International Corporation
which engages in general foreign banking.
From 1930 to 1956 only two Agreement and three Edge Act corporations
were established. The Agreement corporations include: The Bankers
Company of New York which owns stock of Bankers Trust and Executor
Company, Ltd., which conducts trust business in London; and Morgan &
Cie. which engages in general foreign banking through its Paris branch.
The Edge Act corporations include: The Chase Bank which underwent a
change since the early 1950's from general foreign banking to investment
of available funds; Bank of America which engages in general foreign
banking and until 1963 operated several foreign branches, and, American
Overseas Finance Corporation which engages in medium-term financing
of purchases of United States equipment and services by foreigners and
in foreign lending and investment to finance establishment and expansion
of productive enterprises abroad.
The Edge Act did not seem to stimulate the activity that was
expected and desired by its framers. The failure of early Edge Act corporations
was not so much due to inadequacy in the legislation as it
was to a changing environment for international trade. The Act was
intended to facilitate foreign trade by providing ways of extending medium
and long-term credit. Federal charters were expected to lend prestige to
these institutions. However, the international trade environment was
characterized by a growing economic confusion in Europe, fear of competition
by some banks, and lack of American interest in foreign financing.
Passage of the Edge Act was followed by a world-wide depression.
International trade diminished. The deterioration of foreign economies
discouraged American exporters to sell abroad unless the obligations
received were guaranteed by foreign governments. Such guarantees pre.
empted the need for services provided by Edge Act corporations.
In addition to the growing uncertainty in international commerce,
there were other factors that contributed to the problems faced by early
Edge Act corporations. A desire to be a part of a new thing may have
prompted too many banks to establish international corporations when
many banks were also establishing and expanding their international
departments. Some banks suffered from a shortage of personnel qualified
in the intricacies of international banking and finance.
438 LAWYER OF THE AMERICAS
The continuance of the depression into the 1930's and widespread
systems of exchange and trade controls further depressed foreign trade
and interest in foreign banking. The Second World War was also detrimental
to international trade and temporarily precluded interest in foreign
expansion. Renewed interest in foreign banking began to take place some
years after the end of the Second World War as foreign economies
stabilized and liberalized. In summary, ". . . the international operations
of American banks up to the mid-1950's may be characterized as essentially
passive, and certainly not commensurate with the economic and financial
power of the United States in the post-World War II world."'18

As world economic conditions have stabilized and international trade
once again has begun to prosper, there has been a new flurry of activity
under the Edge Act. Several factors can be pointed to as causing this
recent growth.

First, economies of many European countries were in a
state of chaos during the depression, World War II, and immediately
thereafter. These economies have stabilized, and many restrictions on
international trade and capital movement have been eliminated.

Second,many under-developed countries have shown strong growth patterns in
recent years and have developed a need for capital in all forms. Third,
there has been a tremendous upswing in United States investment abroad.
Fourth, the United States has emerged as the principal economic and
financial force in the world economy with the dollar as the principal
currency used in financing foreign trade.

With this growth has come a drastic change in the basic operations of
Edge Act corporations as compared to their predecessors. Early Edge Act
corporations were particularly interested in operating overseas branches.

Today, those "engaged in banking" perform essentially the same services
as the international department of commercial banks. In this way banks
have been able to establish themselves and compete in major foreign
trade locations such as New York, San Francisco, and more recently,
Miami. Others have used the Edge Act subsidiary as a substitute for
establishing foreign branches by buying into various foreign banks. Those
corporations "engaged in financing" specialize in making long-term loans
and equity investments in foreign business enterprises. Another group of
Edge Act corporations have simply been maintained in a passive status
ready to be activated when the need arises.

Activities of Edge Act corporations in banking today are, as stated
above, essentially the same as those of the international departments of
commercial banks. An Edge Act corporation is considered to be "engaged
in banking" whenever it has aggregate demand deposits and acceptance
liabilities exceeding its capital and surplus.

THE EDGE ACT 439

Such a corporation may, for instance, hold demand and time (but
not savings) deposits of foreign parties; issue or confirm letters of
credit; finance foreign trade by extending loans and advances, by
creating bankers' acceptances, or by making other credit facilities
available; receive items for collection and offer other services to
customers, such as remitting funds abroad, purchasing and selling
securities, or holding securities for safekeeping; issue certain guarantees;
act as paying agent for securities issued by foreign governments
and certain foreign corporations; and engage in both spot
and forward foreign exchange transactions.t 9

Corporations "engaged in banking" may invest in stock of other corporations
engaged in banking as well.

Originally, the Edge Act was designed to provide specialized institutions
for financing imports and exports. Though many Edge Act corporations
perform this function, there is another relatively large group that
specializes in extending long-term and equity funds to private business
in foreign countries. Capital has been provided to foreign business both
directly and through specialed foreign financial institutions.

As regards foreign financial intermediaries, Edge Act corporations
have in numerous instances helped in the financing of foreign official
or semiofficial development corporations through the purchase of
shares. These institutions, as the Edge Act corporations often do
themselves, help finance slowly maturing enterprises in their early
stages. By channeling funds to development institutions, an Edge
Act corporation can avoid the detailed studies and investigations that
might render small investments impossible.2 0

Edge Act corporations "engaged in financing" have had no trouble
finding investment opportunities in recent years. The problem has been
only to decide which opportunities are the best. Financing can be in the
form of long-term loans or purchases of stock or combinations of both.
However, equity participation is usually meant to be temporary. It is
often impossible for fledgling enterprises to' service any great amount of
debt. Therefore, the Edge Act corporation purchases stock and intends to
earn its profits in the form of a capital gain. This can be a complicated
process in many foreign countries. A former president of Chase International
Investment Corporation, an Edge Act corporation engaged in
financing, describes the process as follows:

The Edge Act company probably does not intend to retain its in.
vestments indefinitely but rather wishes to liquidate them some day
at aprofit. Investments in debt are self-liquidating but shares are

LAWYER OF THE AMERICAS

quite another matter. In many cases there may be no ready market,
no matter how successful the company may be. Thus, it is helpful
to the Edge Act company if it can arrange a put, . . . .21

It may be helpful to describe a few investments of Edge Act corporations
"engaged in financing". Some of the more interesting projects
have been undertaken by Chase International Investment Corporation
both directly and through its Canadian subsidary, Arcturus Investment
and Development, Ltd. In Costa Rica, Chase has joined a group of Americans
and Costa Ricans in an agricultural project to increase rice production
in that country. Chase has an indirect interest in the construction
of private toll roads in Spain. Through Arcturus, Chase joined a consortium,
including other United States and Australian investors to finance a
nitrogen and phosphate fertilizer plant in Brisbane. 22

Examples of Edge Act financing by other corporations include such
diverse projects as the following: Continental Illinois Finance Corporation
has made a $17 million loan, together with the Export-Import Bank, to an
oil firm building a catalytic cracking plant in Rumania; Bankers International
Corporation has made a medium-term loan to finance the development
of iron ore in Africa; Chemical International Finance participated
in an international consortium to finance an iron mine in Australia's
island state of Tasmania.2 3

As can be deducted from the examples named, the most frequent
borrowers are manufacturing firms. In underdeveloped countries there
tends to be a concentration in enterprises that process the countries' natural
resources and primary materials. There is no particular geographic
concentration in Edge Act financing activity.

SUMMARY AND IMPLICATIONS FOR THE FUTURE
Summary

Though it was passed in 1919, the Edge Act can be viewed as the
"latest development" in the legislation regarding international operations
of American banks. It was the culmination of what had been in progress
during the development of the Federal Reserve Act of 1913 and the amendments
to Section 25 of that Act in 1916 and 1919. Since 1919 there
have been no substantial amendments to the law pertaining to foreign
banking operations of United States banks, few revisions of substance to
regulations implementing that law, and no litigation of significance contesting
international banking legislation.

THE EDGE ACT 441

The durability of the Edge Act is particularly remarkable in view
of the fact that operations under the Edge Act have changed from those
essentially intended to rebuild Europe after the First World War and
provide a medium for export-import financing to a group of operations
that include not only export-import financing but also a great many more
activities.

Despite the variety of the current operations of the corporations
, they fall into four groups, or basic functions, namely:
(1) Foreign banking operations in the United States;
(2) Direct overseas operations;
(3) Specialized financing, including underwriting, and
(4) Equity investments.24

Activity under the Edge Act was vigorous in the years immediately
following its passage, but by 1930, it had practically disappeared. There
was a dearth of activity until the late 1950's when renewed interest began
to develop. Since that time there has been nothing less than a phenomenal
growth in the number of corporations operating under the Edge Act and
in the scale of their operations. There are approximately 70 Edge Act
and Agreement corporations presently in operation.

Why Have Edge Act Corporations Today?

Though this question has been answered throughout this paper, a
summary of reasons is in order. Some of the reasons are essentially defensive.
In general, these reasons center around the things that cannot
be done by other banks. Edge Act corporations make it possible for banks
to offer a more complete range of services to their customers. They allow
banks to skirt some of the restrictions applicable to various aspects of
commercial banking such as making it possible to bridge state boundaries
and to buy stock in foreign corporations. They also facilitate the strengthening
of relations with present customers. They can bring in new overseas
customers for the parent bank's services. Besides defensive motives
some banks hope for increased profits. The going interest rate in some
countries and the potential capital gains on equity investments at least
make possible much higher returns than could ordinarily be realized by
banks in this country.

In addition to the reasons enumerated above, there is a rather recent
development that has precipitated some Edge Act activity. This has been
the growth of the Eurodollar market. Some of the more recently organized

442 LAWYER OF THE AMERICAS

Edge Act corporations have been developed primarily to engage in the
Eurodollar market.

In its Eurodollar activities, the corporation itself generally does not
acquire Eurodollars. It serves primarily as a clearing agent for the
transmission of the funds obtained by the parent bank through its
overseas branches.25

The question asked about Edge Act corporations can also be directed
to Agreement corporations. Though Agreement corporations far
outnumbered Edge Act corporations before and during the 1920's, there
have only been three to five Agreement corporations active at any one
time since 1930. Today Agreement corporations are outnumbered by
Edge Act corporations by more than twelve to one.

Today, both types of Corporations are subject to the same regulations,
with the scope of activities of an Agreement Corporation being
somewhat more restrictive. Because of this there are now only two
basic reasons for choosing an Agreement rather than an Edge Corporation,
both being of a technical or legal nature. One is where
State banking laws have provisions for State banks to acquire the
stock of a State-chartered international banking company, but not
that of an Edge Corporation. Until recently this was true in California.

The other reason for choosing an Agreement Corporation
is where the purpose of the Corporation does not require a capital
of $2,000,000, which is the required minimum for an Edge Act
Corporation. This latter is illustrated by Bankers Company of
New York, The Gallatin Co., Inc., and First Foreign Investment
Corporation owned by the First National Bank of Miami, each of
which was utilized to acquire and hold a single stock issue.26

Prospects for Continued Growth

Several reasons can be proffered as to why there should be continued
growth of Edge Act corporations. The continued growth of international
trade will probably be the most important reason for growth. However,
an analysis of the prospects for such growth is well beyond the scope
of this paper. Another reason for growth is the competitive nature of
banking. This precludes a bank from allowing itself to stand still while
others innovate.

An interesting point in case with regard to the competitive pressure
to establish Edge Act c6rporations is the activity in Miami during the
last two years. In 1969 the Citizens and Southern National Bank of
Savannah established an Edge Act bank, Citizensand Southern Interna.

THE EDGE ACT 443

tional Bank, in Miami. In March, 1971, Bank of America established
an Edge Act bank in Miami. This was followed in May, 1971, by First
National City Bank (Interamerica). Irving Interamerican Bank will be
in operation by July, 1971. Already Miami has become second only to
New York in the number of Edge Act corporations. It is reported that
a number of other leading banks in New York, Chicago, Philadelphia,
and elsewhere are seriously studying the feasibility of setting up Edge
Act subsidiaries in Miami. The reasons for this sudden flurry of activity
in Miami are as follows:
1. a desire to service the rapidly expanding import-export business
between Miami and Latin America;
2. a desire to do business with the many national corporations
that have established headquarters for Latin American operations
in Miami and Coral Gables;
3. a desire for an increased share of Latin American deposits in
United States banks which the convenience of a Miami location
is expected to stimulate;
4. an abundant supply of well-educated, bilingual personnel.
Additionally, it must be inferred that no bank hoping to do extensive
business in Latin America can afford not to have an Edge Act bank
in Miami in the face of the recent activity. There is also one Agreement
corporation in Miami, The First Foreign Investment Corporation
owned by The First National Bank of Miami. However, it is not in
competition with the Edge Act banks as it was organized to acquire
and hold a single stock issue 2 7
What has happened in Miami is a small-scale repetition of what
happened in New York shortly after the Edge Act was passed and again
in recent years. The Edge Act provides a way for banks to locate in
international trade centers. Other cities may very well experience a
similar growth. The Citizens and Southern National Bank is presently
establishing an Edge Act bank, their second, in New Orleans. Any city
with significant international activity is a prime target for Edge Act
banks.
Geographic dispersion is much less likely for Edge Act corporations
engaged in financing. The nature of their operations does not require
a location chosen for the convenience of the customer as does a bank.
In numbers, the financing corporations have been in the majority. As
more-and-more financing ventures result in success, reasonable profits,
and an expanded expertise in international financing for Edge Act corLAWYER
OF THE AMERICAS
porations, it seems likely that there will be a continued growth in their
operations.
FOOTNOTES
t Board of Governors of the Federal Reserve System, "Foreign Operations of
U.S. Banks and Their Supervision," Washington, D.C., Federal Reserve System,
June 30, 1967, p. 3.
2Much of the factual material in this section draws on: Don L. Woodland,
"Foreign Subsidiaries of American Commercial Banks," University of Houston
Business Review, Vol. 10, Winter, 1963.
3Frank M. Tamagna and Parker B. Willis, "United States Banking Organization
Abroad," Federal Reserve Bulletin, December, 1956, p. 1286.
4 National Monetary Commission, "Report of the National Monetary Commission,"
Vol. XXIV, Washington, D.C., U.S. Government Printing Office, 1912, p. 9.
SBoard of Governors, "Foreign Operations of U.S. Banks and Their Supervision,"
p. 2.
6Board of Governors, "Foreign Operations of U. S. Banks and Their Supervision,"
p. 2.
7H. Rep. No. 447, 64th Cong., 1st Sess. 1915-16, p. 2.
SAct of September 17, 1919, 41 Stat. 285-86, 12 U.S. Code see. 601, 1958.
9Walter Evans Edge, "A Jerseyman's Journal: Fifty Years of American Business
and Politics," Princeton, New Jersey, Princeton University Press, 1948, p. 114.
t0 Fourth Annual Report of the Federal Reserve Board Covering Operations
for the Year 1917, Washington, D.C., Government Printing Office, 1918, p. 33.
IlThis point was litigated in Apfel v. Mellon, 33 F.2d 805 (D.C. Cir. 1929),
cert. denied, 280 U.S. 585, (1929). Mandamus brought against the Board of
Governors was refused to persons seeking an Edge Act corporation. The denial of
the application by the Board had been on the grounds that the applicants lacked
sufficient qualifications and experience in banking and finance. "Mandamus does
not lie to control the Federal Reserve Board's discretion in refusing to approve
articles of incorporation of foreign banking corporations."
12 Despite the far-reaching implications of the Edge Act and preceding legislation,
no curtailing of operations of commercial banks was intended. In Travis v.
National City Bank, 23 F. Supp. 363 (E.D.N.Y. 1938), it was held that the Edge
Act was not intended to limit the scope of the basic powers of national banks.
"The Edge Act governing formation of corporations to do foreign banking does
not restrict powers of national banks, but manifests intent to extend powers of
some national banks to the new kind of corporations."
13Allen F. Goodfellow, "International Corporations of American Banks," unpublished
thesis, Stonier Graduate School of Banking, June, 1968, pp. 5-6.
412 U.S. Code sec. 615.
lsApfel v. Mellon, 33 F.2d 805 (D.C. Cir. 1929), cert. denied, 280 U.S. 585,
(1929). See footnote 11.
1612 Code of Federal Regulations see. 211.(b)(1).
17Edge, "A Jerseyman's lournal," p. 114.
IsBoard of Governors, "Foreign Operations of U.S. Banks and Their Super.
vision," p. 6.
THE EDGE ACT 445
19George H. Bossy, "Edge Act and Agreement Corporations in International
Banking and Finance," Monthly Review, Federal Reserve Bank of New York,
May, 1964, p. 89.
20Ibid., 90.
21Victor E. Rockhill, "The Role of Edge Act Companies in International
Financing," speech delivered in New York, October 5, 1960.
22Chase International Investment Corporation, brochure, 1970.
2 3These examples and others were reported in Business International, May,
1970, p. 143.
24Goodfellow, "International Corporations of American Banks," p. 49.
25Irving Auerbach, "Edge Act Corporations: Some Problems for U. S. Banking
and Monetary Statistics," unpublished paper provided by the Federal Reserve Bank
of New York, February 20, 1970, p. 8. This paper provides a detailed analysis of
how the Eurodollar operations of Edge Act corporations distort money supply data.
26Goodfellow, "International Corporations of American Banks," pp. 41-42.
27Ibid., 42.
*B.A., University of Notre Dame; M.B.A., University of Miami; Research
Assistant for Marketing Department, University of Miami. Mr. McGuire plans to
initiate law studies in September 1972.


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