Edge Act Corporation

Summary of Edge Act Corporation

A federally chartered bank formed under authority of the Edge Act of 1919 (Section 25 A of the Federal Reserve Act) exclusively for the purpose of engaging in international transactions. The Edge Act permits a commercial bank, through the formation of a subsidiary under Section 25 (A), to overcome the usual impediments to the conduct of banking activity outside its home state. An Edge Act bank may be established in a state other than the base state of its parent, so long as it restricts activity to international-trade-related activities. As originally enacted, the Edge Act provided for two types of international subsidiaries: banking Edge, formed to engage in the issuance of letters of credit and to deal in foreign exchange; and investment Edge, structured to invest in foreign securities and foreign commercial paper. The act has been amended to eliminate the distinction between banking and investment Edges; all Edge Act banks may now participate in both banking and investment activities.

(Main Author: William J. Miller)