Agreement corporation – definition and meaning
An Agreement Corporation is a state chartered corporation that has the authority to engage in international business. This authority is in agreement to the terms of the Edge Act.
An Agreement Corporation enters into an “agreement” with the Board of Governors of the **Federal Reserve System. In the agreement, the Corporation pledges to limit its activities to those of an Edge Act Corporation.
** The Federal Reserve System (Fed) is the central bank of the United States.
According to the New York Fed, the Edge Act was chartered by the Federal Reserve under Section 25A of the Federal Reserve Act. Lawmakers added amendments to the Act in 1916 and 1919.
Thanks to the amendments, banks with capital and a surplus of over $1 million, have the authority to invest up to 10 percent of their capital and surplus in a corporation charted under Federal or state law to “conduct international or foreign banking” activities.
In 1919, Congress passed a law that added section 25(a) to the Federal Reserve Act. The added section authorized the Board of Governors to charter corporations “for the purpose of engaging in international or foreign banking or other international or foreign operations… either directly or through agency, ownership, or control of local institutions in foreign countries”.
What can an agreement corporation do?
Essentially this means is that an Agreement Corporation has the authority to receive deposits from and make loans to companies engaging in international business. The Corporation can do this without Federal Deposit Insurance Corporation coverage.
This structure is what gives American banks the ability to own and operate foreign branches.
An agreement corporation functions under the same regulations as Edge Corporations, however, it is chartered by a state.
According to the Nasdaq Business Glossary, an agreement corporation is a:
“Corporation chartered by a state to engage in international banking: so named because the corporation enters into an “agreement” with the Fed’s Board of Governors that it will limit its activities to those permitted by an Edge Act Corporation.”