Edge Act Corporation – Definition

Cite this article as:"Edge Act Corporation – Definition," in The Business Professor, updated November 22, 2018, last accessed October 1, 2020, https://thebusinessprofessor.com/lesson/edge-act-corporation-explained/.


Edge Act Corporation Definition

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 act known as the 1919 Edge Act, which authorizes them to perform international banking activities.

A Little More on What is an Edge Act Corporation

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 Corporation (EAC) was 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.

References for Edge Act Corporation




Academic Research on Edge Act Corporation

  • A Shot in the Arm for¬†Edge Act¬†Corporations, Cobb, M. A. (1980).¬†Banking LJ,¬†97, 236. This paper highlights the changes in the federal laws and regulations and the impact on Edge Act corporations. It also discusses the controversial issues surrounding the changes not yet solved by the Federal Reserve Board. Due to these changes, banks in international financing face increased competitions from Edge Act corporations.
  • Edge Act¬†Corporations After the International Banking¬†Act¬†and New Regulation K: Implications for Foreign and Regional or Smaller Banks, Kelly, D. E. (1979). Va. J. Int’l L.,¬†20, 37. Edge Act corporations are organizations that engage in international banking and other financial activities. The Federal Reserve Act (Edge Act) and Federal Reserve Board Regulation K govern the activities of Edge Act corporations. These activities are monitored by the board of governors of the Federal Reserve System.
  • State and Local Taxation of Branches of¬†Edge Act¬†Corporations-Opportunities and Limitations, O’Brien, J. G. (1979). Banking LJ,¬†96, 893. To ensure effective competition between foreign banks and Edge Act corporations, Section 3 of the International Banking Act of 1978 directs the Federal Reserve Board to increase the power of Edge Act Corporations. As a result, the Federal Reserve Board announced a revision of the law called Regulation K. Under this new law, Edge Act corporations are able to develop new branches across state lines.
  • Edge Act¬†Corporations-Catalysts for International Trade and Investment, Wiley, R. A. (1960).¬†Bus. Law.,¬†16, 1014. This article answers two major questions: Firstly, how can American exports be more competitive with exports of Western Europe and Asia, balancing the international balance of payments? Secondly, how can enormous funds of American private institutional investors be channeled into underdeveloped countries to increase investment activities of the United States government? This article is the second published article to ever discuss Edge Act corporations.
  • Formation of¬†Edge Act¬†Corporations by Foreign Banks, McPHETERS, R. D. (1982).¬†The Business Lawyer, 593-612. The International Banking Act of 1978 and Regulation K allowed international banks and other financial institutions to own majority shares of corporations (known as “Edges”). This appears under Section 25 (a) of the Federal Reserve Act3 (the “Act”). This serves as a vehicle for foreign banks and other financial institutions a to expand their activities in the United States by establishing additional offices that are not subject to restrictions of the Bank Holding Company Act of 1956 (the “Bank Holding Company Act”).
  • Edge Act and agreement corporations: mediums for international banking, Pinsky, N. (1975).¬†Economic Perspectives, 25-31. Over the past 2 decades, American banking has developed tremendously especially with the expansion of international activities of U.S banks. Initially, United States banks were only able to carry out banking and finance activities which were restricted before the Edge Act and Agreement corporations. In recent years, these corporations have made it easy for U.S banks to establish offices outside their home states.
  • The¬†Edge Act: Its Place in the Evolution of International Banking in the United States, McGuire, J. J. (1971).¬†Law. Am.,¬†3, 427. The law governing the activities of international banking in the United States was passed in 1919. At the end of 1956, there were just 7 Edge Act and Agreement corporations. But by June 30, 1970, it had developed to 68 of such organizations. This paper answers the question of why such phenomenal growth was experienced in recent years when the law was passed 52 years ago (55 years ago for Agreement corporations).
  • The Use of¬†Edge Act¬†Corporations Formed under the Laws of the United States of America by Foreign Banks, Robinson, I. J. (1983). The International Lawyer, 407-433. Edge Act corporations are federally chartered organizations that engage in international banking and other financial activities. Section 25(a) of the Edge Act, named after its sponsor, the late Walter Edge, a U.S senator from New Jersey, sanctioned the establishment of Edge corporations in 1919 to facilitate the financing of U.S exports. After the International Banking Act of 1978, international banks are authorized to establish federally chartered Edge Corporations.
  • Edge Act¬†Enables National Banks to Invoke Federal Jurisdiction Over Suits Involving International Banking for Financial Operations, McCormack, T. J., Sidorsky, R., & Nixon Jr, D. (2007). Banking LJ,¬†124, 907. In this paper, the authors analyze the section of the Edge Act that grants American banks access to the federal court system when they have legal problems arising from international or foreign financial transactions or activities. Section 632 of the Edge Act of 1913 grants federal courts jurisdiction over any suit with a national bank as a defendant due to international banking and other financial activities.
  • The¬†edge act¬†in US banking, Brunsden, P. (1973).¬†The International Executive,¬†15(2), 32-34. In this article, the author examines and comments on the evolution of the international role of U.S banks. He also discusses the present status and prospects of Edge Act corporations. The review starts with the almost nonexistent activity as at World War I and ends with the flourish of Edge Act corporations as at the end of 1972.
  • Foreign bank activity in the United States: An analysis by country of origin, Grosse, R., & Goldberg, L. G. (1991). Journal of Banking & Finance,¬†15(6), 1093-1112. The number of foreign banks in the United States has increased dramatically over the years. This article studies the extent of the foreign bank presence in the U.S and its distribution by country of origin. The article develops a model that represents the determinants of the value of foreign bank assets and the number of foreign bank offices in the United States by country of origin. It tests the model using recent data from the Federal Reserve System.
  • evolution of the Super Edge: Regulation and Operations of¬†Edge Act¬†Banks, The, Curtis, C., & Baker, J. C. (1987). The.¬†J. World Trade L.,¬†21, 25. The expansion of international banking has led to the multiplication of Edge Act Corporation (Edges) in the United States. Edges have evolved to ‚ÄúSuper Edges‚ÄĚ with nationwide and foreign branches, providing financial services to international businesses and foreigners. The evolution from edges to ‚ÄúSuper‚ÄĚ status is traced in this article. It also examines the operations of Edges before and after the International Banking Act of 1978. The role of Edges in the international banking industry and their evolution to Super Edge status is also discussed.

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