What is an Edge Act Corporation?

An Edge Act Corporation (EAC) is a subsidiary of a U.S. bank that engages in international banking activities. These banks or subsidiaries are named after the 1919 Edge Act, which authorizes banks to perform international banking activities.

How does an Edge Act Corporation Work?

Until 1919, U.S. institutions could not owned foreign banks. The Edge Act was proposed and sponsored by an American senator Walter Evan Edge from New Jersey. The act gives more impetus to U.S. banks to compete international banks. Prior to the enactment of the Edge Act in 1919, U.S financial institutions and banks were not permitted to own or acquire foreign banks. 

In the United States, these subsidiaries are chartered by the Board of Governors of the Federal Reserve System (USA). The Federal Reserve Bank (FRB) supervises the activities of Edge Act Corporations (EAC) and their subsidiaries. Edge Act Corporations are exempted from state laws. 

International banks interested in operating in the US are allowed to form Edge Act Corporations. They cannot, however, transact international trades. These subsidiaries allow a bank to separate domestic risk from international operation.

Two Forms of Edge Act Corporation – Banking & Investment

Banking Edge Corporation – A Banking Edge Corporation is authorized to collect deposits form companies and make advances to other companies engaged in international trade. But they can operate under the Edge Act only if they are engaged in international trade such as import and export financing etc.

 Investment Edge Corporation – An Investment Edge Corporation is authorized to invest funds in foreign companies or financial institutions.