what is Edge Act banks

Question

State what is meant by Edge Act banks.

Answer 1

Edge Act banks are federally chartered subsidiaries of the U.S. banks that are located in United States which are allowed in order to engage in the full range of international banking activities.  A 1919 amendment to Section 25 of Federal Reserve Act created the Edge Act banks.  Main aim of the amendment was to enable the U.S. banks to be competitive along with the services foreign banks could provide to their customers.  Federal Reserve Regulation K enables Edge Act banks in order to accept the foreign deposits, finance foreign projects abroad, extend trade credit, trade foreign currencies, and engage within the investment banking activities along with the U.S. citizens including foreign securities.  As such, Edge Act banks do not compete directly with services offered by the U.S. commercial banks.  Edge Act banks are not banned from owning the equity in business corporations as domestic commercial banks are. Therefore, it is through Edge Act which U.S. parent banks own foreign banking subsidiaries and have ownership positions in the foreign banking affiliates.