What is an Edge Corporation?

Mary McMahon
Mary McMahon

An Edge corporation or Edge Act corporation is a financial institution authorized under the law of the United States to conduct business internationally. Edge corporations can be subsidiaries of US banks, properties of holding companies, or branches of international banks. These institutions are named for the 1919 Edge Act, a piece of legislature that made it possible for US banks to do business overseas. The increasingly international nature of the banking industry has led to a decline in the formation and maintenance of Edge corporations, as regulations are shifting and financial institutions have more leeway in how and where they do business.

Edge corporations can be subsidiaries of U.S. banks or branches of international banks.
Edge corporations can be subsidiaries of U.S. banks or branches of international banks.

Prior to 1919, national banks in the United States could not do business overseas. This proved to be a barrier to entering the business and financial markets, and the Edge Act was drafted to address this problem. Under the act, banks could receive a charter to do business internationally without being required to follow state-by-state banking laws, as long as they restricted their financial activities to international business. An Edge corporation could not, for example, make loans domestically in the United States.

The Edge Act has undergone a number of revisions designed to keep pace with changes in the global financial industry so the United States does not lag behind other nations and as a result the nature of an Edge corporation has shifted over time. Many national banks created subsidiary corporations for the purpose of doing business internationally, and foreign banks began forming their own Edge corporations when they were authorized to do so in 1978. The restrictions on activities at an Edge corporation have persisted, with such corporations being required to keep their business international in nature.

Nonbanking Edge corporations can engage in investments and related activities, while banking institutions can accept and hold deposits, make loans, and offer similar services to their customers. The limitations on activities permitted have often acted to keep these corporations small in the past, because they do not have large reserves of capital to draw upon for banking activities. The ability to engage in foreign banking allowed Edge corporations to be involved with foreign investments like securities, expanding investment opportunities and diversifying portfolios.

The Edge corporation has become less common as financial regulations have shifted to accommodate the increasingly international nature of banking and doing business. Today, many financial institutions have international branches, including branches of foreign banks in the United States and branches of US banks overseas. This facilitates trade, the free flow of loans, and easy access to funds all over the world for travelers, business people, and others.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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