Editing Edge Act (section)

===Types===

* Banking Edge or Agreement Corporation, which is directly under control of a U.S. member bank or bank holding company, can receive deposits (without [[Federal Deposit Insurance Corporation]] coverage) from, and make loans to, companies engaging in international business.  This structure allows foreign branches of U.S. banks.
* Investment Edge or Agreement Corporation functions as an investment company, taking equity positions in foreign commercial and industrial organizations;

An Agreement Corporation is chartered by a state to engage in international banking (essentially a state-chartered EAC, so named because the corporation enters into an "agreement" with the Fed's Board of Governors to limit its activities to those of an Edge Act Corporation, as if organized under Section 25A of the Federal Reserve Act. In reality, state supervision is superfluous, so Edge Act Corporations (rather than Agreement Corporations) are the vehicles of choice for international banking and financing operations.

Investment Edges expand the types of companies in which their parent banks may invest. By law, U.S. banks may invest abroad only in other banking organizations. However an Edge Act Corporation may invest in any type of foreign company, as long as it does not engage in business in the United States, including making any domestic loans.

Banking Edges extend the geographic reach of their parents because an Edge was not considered a bank and hence was not subject to the same interstate banking prohibitions. Thus in the 1960s, the trend was for banks from outside the state of [[New York (state)|New York]] to form Banking Edges and locate them in [[New York City]] for conducting international banking and for trading in foreign exchange. In the 1970s and 1980s, the trend was toward expansion into regional financial centers, such as Miami, Chicago, and San Francisco.

Legislation in the mid-1990s, providing for the removal of Federal Interstate Branching restrictions, undermined the appeal of Banking Edges, and their relative importance in international banking has therefore declined. Major disadvantages of a Banking Edge, compared with an agency, are the smaller size of its loans (due to its smaller capital base, compared with that of the agency's parent bank) and the limitation of domestic lending ability to international or foreign business transactions. Of the 82 Edge and Agreement Corporations in operation at year-end 1999, 27 were Banking Edges located mostly in New York City and Miami with total assets of $18 billion.