Edge Act

The Edge Act is a 1919 Amendment to the Federal Reserve Act of 1913 (12 U.S.C. 611-631) which allows National Banks to engage in international banking through federally chartered subsidiaries. The Act is named after the late Walter Evans Edge, an erstwhile U.S. Senator from New Jersey who sponsored the original legislation for these types of subsidiaries. The impetus for the act was to give U.S. firms more flexibility to compete with foreign firms.

An Edge Act Corporation (or Agreement Corporation) is a subsidiary of a Bank or Bank Holding Company, chartered by the Federal Reserve under Section 25(a) of the Federal Reserve Act, as amended in 1916 and 1919, to engage in foreign banking activities. The FRB allows U.S. and foreign banking organizations to establish Edge corporations. The FRB regulates and examines the foreign activities of Edge Corporations and their subsidiaries. Foreign banks operating in the U.S. are permitted to organize and own an edge corporation.

Due to historical developments and funding considerations, an Edge Corporation is generally held as a subsidiary of a member bank; however, it may also be held directly by the bank holding company. An Edge Corporation is permitted to engage in activities directly, though few do so. Rather, the Edge usually acts as the holding company of a banking organization's foreign activities.

An Edge Corporation is useful because, among other things, it separates the risks of domestic operations from those of international. There are two types: The first is directly under control of U.S. bank; the second is under a U.S. holding a company. The first is oft' referred to as a Banking Edge Corporation, which can receive deposits (but cannot receive coverage from the FDIC). This structure allows foreign branches of U.S. Banks. The second is commonly referred to as an Investment Edge Corporation (aka "Agreement Corporation"), which acts as a holding company for foreign subsidiaries.

In SEC filings and legal documents, reference to Edge Act Corporations typically mention the state where it is domiciled.

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