Agreement Corporation
What Is an Agreement Corporation?
An agreement corporation is a type of bank that is permitted by a state to participate in international banking.
The term is derived from the fact that to receive this permission, the banks being referred to need to consent to limit their activities to those permitted under the Agreement Corporation Act, which was passed in 1916.
Grasping Agreement Corporations
Until 1913, banks in the United States were disallowed from opening branches overseas or financing foreign activities. Be that as it may, as the country progressively turned into a major international [exporter](/send out), the government came to perceive the requirement for American banks to open up operations abroad.
To this end, Congress passed the Agreement Corporation Act in 1916. This new law authorized American banks to invest 10% of their capital into state-chartered banks and corporations permitted to internationally finance projects. The state-chartered bank would have to go into an agreement with the Federal Reserve, consenting to be limited by the rules and regulations set out in the Act. It was from these agreements that the term "agreement corporation" emerged.
From the start, hardly any companies approached to partake in this new program. In the three years after its entry, just a single American bank had shaped an agreement corporation. For most banks, the costs and risk of growing operations under the Act basically were not justified considering the likely rewards.
The Edge Act
To address this situation, Congress passed an amendment to the Federal Reserve Act in 1919. This new law, known as the Edge Act, authorized the Federal Reserve to charter new banks explicitly situated toward international lending. These new companies, known as Edge Act corporations (EACs), helped open the door for increased international inclusion of American banks writ large.
Illustration of an Agreement Corporation
The Edge Act successfully eliminated the requirement for state supervision over agreement corporations. All things being equal, these corporations went under the oversight of the Edge Act, and subsequently of the Federal Reserve. American banks made new EAC vehicles in which to concentrate their international banking operations. This permitted them to isolate the risks of international lending from their core domestic banking activities.
Since the entry of the Edge Act in 1919, the laws encompassing international banking have additionally developed toward advancing international commerce. Today, American banks are among the world's most active participants in international lending.
Features
- The 1916 Agreement Corporation Act permitted banks to put 10% of their funds into state-chartered banks and corporations permitted to finance projects overseas.
- Notwithstanding, many banks were hesitant to assume the costs and risks of growing their services.
- Albeit in the mid twentieth century American banks were hesitant to loan internationally, they are today among the most active participants in international commerce.
- The term is rarely utilized today, as it connects with a 1916 law that has since been supplanted with later legislation.
- Agreement corporations are banks that are permitted to take part in international banking and transactions.
- To cure this, Congress passed an amendment to the Federal Reserve Act in 1919 called the Edge Act, which said that the Fed could charter new banks with the end goal of international lending.
