Agreement Corporation - Explained
What is an Agreement Corporation?
Written by J. Mance Gordon
Updated at April 18th, 2022
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Table of Contents
What is an Agreement Corporation?How Does an Agreement Corporation Work?The Edge ActWhat is an Agreement Corporation?
An agreement corporation can be defined as a corporation that has been chartered by a state to take part in international banking. They are referred to as "agreement" corporations because they have accepted to obey the restrictions set by the Agreement Corporation Act and the Edge Act. Although, many of these restrictions have since been eased. An agreement corporation can also be defined as a corporation that has received a charter from the state, and thus, is authorized to engage in international business. Under the agreement corporation act, agreement corporations are not restricted from receiving funds from national corporations and making use of those funds to engage in international banking.
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How Does an Agreement Corporation Work?
Prior to 1919, the United States institutions were not allowed to own foreign banks or engage in foreign trade. Later in 1919, a congress passed a law that made amendments to the Act. The amendment allowed banks the Board of Governors to charter corporations for the sole purpose of engaging in international banking or other international activities. Banks engaged in foreign activities in various ways - directly, through agencies, ownership, and control of local institutions. The amendments, allowed banks owning capital and excess fund greater than $1 million to have the authority to invest up to 10% of their capital and excess fund in a corporation chartered under a Federal or state law to engage in international activities.
The Edge Act
The amendment made to the United States Federal Reserve Act of 1913 in 1919 is called the "Edge Act". This act allows the participation of local or national banks in international banking and activities by going through subordinates, chartered by the Board of Governors of the Federal Reserve System. The edge act is named after Walter Evans Edge, a senator of the United States who hails from New Jersey. Walter Evans was a patron of the original legislation for these types of subordinates. The factor that stimulated the creation of the edge act was the necessity to limit the restrictions placed on United States' firms, thereby, giving the firms more flexibility to be able to compete with foreign firms.