Provisions of the Edge Act The Edge Act became law in December, 1919. It allows federal incorporation of two kinds of banking institutions, which, however, are not clearly distinguished—one doing principally commercial banking, and the other modeled upon the "invest ment trust" of European countries doing an investment business. Five or more natural persons may procure a federal charter run ning twenty years, under a name approved by the Federal Reserve Board. Its capital must be at least $2,000,000, and one-tenth of the net proceeds must be carried to surplus until the amount thus set aside equals 20 per cent of the capital. A controlling interest in the corporation must at all times be owned either by 1. Citizens of the United States.
2. State or federal corporations in which the controlling interest is owned by citizens of the United States.
3. Firms or companies in which the controlling interest is owned by citizens of the United States.
National banks may invest in the stocks of the Edge corpora tions, but the aggregate amount of stock held by a bank in all Edge corporations together with its stock in those corporations described in Section 25 of the Federal Reserve Act as amended, authorizing national banks to establish branches abroad, may not exceed io per cent of its capital and surplus. The act provides for the conversion of state corporations into Edge corporations, with the approval of the board.
The directors of an Edge corporation must be citizens of the United States, and a member of the Federal Reserve Board is dis qualified from being an officer, director, or shareholder, either in an Edge corporation or in a similar institution chartered by a state. The Clayton Act was amended to extend its prohibitions of interlocked directorates to the Edge corporations; but a direc tor, officer, agent, or employee of a national bank may serve at the same time in an Edge corporation, with the permission of the Federal Reserve Board; and a director, officer, agent, or employee of an Edge corporation is not prohibited from serving, with the approval of the board, in any other corporation in which the Edge corporation has invested.
Powers of the Edge Corporations The Edge corporations enjoy general banking powers; to handle all forms of commercial instruments; to deal in securities, including those of the United States and of any state; to accept bills drawn upon them, subject to regulations and limitations imposed by the Federal Reserve Board; to issue letters of credit; to deal in coin, bullion, and exchange; to borrow and lend money; to issue debentures, bonds, and promissory notes, subject to conditions and restrictions imposed by the board, to an amount not exceeding at any one time ten times the capital and surplus of the issuing corporation; to receive deposits outside the United States and such deposits inside the United States as may be inci dental to its foreign operations (against which domestic deposits it must carry reserves prescribed by the Federal Reserve Board amounting to not less than ic) per cent); to do all things deemed by the board as incidental to the transaction of its business of bank ing and finance in foreign countries; to establish branches and agencies abroad, in places approved and under regulations pre scribed by the board.
An Edge corporation may purchase and hold stock in any other Edge corporation or in a corporation organized under the laws of any foreign country or of any state or dependency of the United States, on condition that such corporation does not engage in merchandise business inside the United States except to the extent that the board may decide is incidental to its foreign business. It may not invest in any one corporation in excess of
ro per cent (r5 per cent in case of banking corporations) of its own capital and surplus, without the approval of the board. Nor may it own stocks in any other corporation, organized under the Edge Act or state law, which is in substantial competition with it, or which holds stock in corporations which are in substantial com petition with the purchasing corporation. Edge corporations may not become members of the federal reserve system, and they are prohibited from carrying on any part of their business inside the United States, except as the board deems it incidental to the foreign business. They are also prohibited from merchandising in commodities and from directly or indirectly controlling or fixing prices of the merchandise, a prohibition conforming to the Ameri can policy of separation of trading and banking.
Edge Corporations Established It is thus seen that the Federal Reserve Board is clothed with broad powers for the regulation and control of the Edge corpora tions, and upon this regulation their success and avoidance of danger largely depend. The first set of regulations was issued 2 in March, 1920. Another potent factor determining the success of the Edge corporations is their ability to distribute among inves tors in this country the obligations that they may indorse or may issue against the foreign obligations they may acquire. Being a new form of banking institution it will require considerable pub licity and propaganda to induce the participants in foreign trade to use them. Their development is also being promoted by the fact that in the different states (already 19) the "blue sky" restrictions forbidding one bank to hold for investment stock in another bank have been cleared away.
Of the several Edge corporations already established the First Federal Foreign Banking Association of New York was organized by financial interests of New York and New England, in the interest of the manufacturers of their localities.
The Foreign Trade Financing Corporation of New York was launched during the economic depression in the winter 1921, at a Chicago conference of some 500 representatives of the banking, commercial, agricultural, and industrial interests of every section of the country, with a view to extending long-term credits to foreign buyers of American goods and thus terminating the threatened paralysis of our international trade. The cor poration is capitalized at $ioo,000,000, the shares being held broadly throughout the country, and it may issue $1,000,000,000 of debentures for sale to investors of all classes throughout the United States and elsewhere, if deemed desirable. The corpora tion is establishing branches in different parts of the United States as well as agencies in foreign countries.
A third Edge corporation, the Federal International Banking Company of New Orleans, was also founded during the depression in the winter of 1920-1921, by southern bankers, for the purpose of lending financial aid in the exportation of cotton and other southern products. It is capitalized at $6,000,000, with shares held throughout the cotton states, in whose larger cities branches and agencies are being located.