September 1977
EXPANSION OF
MIAMI EDGE ACT
CORPORATIONS
by Donald E. Baer
In 1919, Senator W alter Edge successfully
sponsored a Federal Reserve A ct amend­
ment w hich permitted banks, singly or
jo in tly, to establish international banking
subsidiaries outside their home states. The
resulting "Edge A ct corporations" were
confined to international a ctivity and
required to show a minimum cap italizatio n
of $2 m illio n .1 For 40 years, the provision
was v irtu a lly unused. Since 1960, however,
the number of Edge A ct corporations has
expanded rapidly as U. S. banks have
become increasingly involved in in­
ternational finance. By June 1977, 113
Edge A ct corporations were operating in
U. S. cities.
The Edge A ct expansion came in two
distinct stages. In the first stage, banks and
bank holding companies, prohibited from
investing directly in foreign banks and
corporations, established "investm ent
Edges" to accom plish the same result
indirectly. These Edges were generally
located in the same city as the head­
quarters of the parent bank. Subsequent
amendments in 1966 and 1970 to the
Federal Reserve and Bank Holding
Com pany A cts, however, elim inated some
of the major advantages of these
investment-oriented Edge A ct corporations
by allow ing bank holding companies to
invest in foreign companies under
guidelines sim ilar to those governing Edges
and further permitting national banks'
investment in foreign banks.
The second stage of Edge A ct cor­
poration development has been con­
centrated on "ban kin g" Edges, where a
parent bank (or banks) establishes in­
ternational banking facilitie s in regional
fin an cial centers outside the parent's home
1A previous study on Edge Act corporations in the Southeast was published in
the Federal Reserve Bank of Atlanta's September 1974 Monthly Review.
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Federal Reserve Bank of St. Louis
state .2 By June 1977, there were 62 of
these Edges, 10 of which are in M iam i. The
Miam i Edges have all been established
since 1969 by parent banks in C alifo rn ia,
Georgia, Illino is, M assachusetts, and New
York (see Table 1), placing M iam i second
only to New York C ity in the number of
away-from-headquarters Edge A ct cor­
porations (see Appendix).
f
TA BLE 1
MIAMI E D G E A C T C O R P O R A T IO N S
(as of A ugust 1977)
A
Commenced
Bu sin ess
•
•
•
•
•
•
•
•
C itize n s and Southern International Bank
Bank of A m erica International of Flo rid a
Citib ank Interam erica
Irving Interam erican Bank
W ells Fargo Interam erican Bank
Bank of Boston International of Miami
C h a se B ank International (Miami)
Bankers Trust International (Miami)
Corporation
• Northern Trust Interam erican Bank
• Morgan G uaranty International
Bank of Miami
3-24-69
3-8-71
5-3-71
8-2-71
8-16-71
5-15-72
10-19-72
8-19-74
9-16-74
2-15-77
V__________________ J
Latin America and the Miami Edge
Corporations. Latin Am erican linkages
have drawn the Edge corporations to
M iam i. Its bilingual population, relative
proxim ity to Latin Am erica, and heavy
South and Central Am erican visitor tra ffic
make it an attractive and convenient site
for the Latin Am erican operations of large
U. S. banks. Indeed, nearly all of the
foreign loans and deposits of M iam i Edges
involve Latin Am erica or the Caribbean.
H isto rically, much of Latin Am erican
international fin an cial transactions has
been handled directly by the largest U. S.
banks, p articu larly those in New York.
Now M iam i banks provide not only
traditional servicing of deposits but also
trade and medium-term financing. In­
terbank com petition and increased
fin an cial sophistication of international
clients are stim ulating M iam i's develop­
ment into a full-service, specialized Latin
Am erican banking center.
^ Banking" Edges are defined as subsidiaries whose aggregate
demand deposits and acceptance liabilities exceed capital and surplus
September 1977
A ll M iam i Edge corporations operate as
subsidiaries of their parent bank, with
activities in M iam i dependent on their
parents' network of international offices.
W here the parent bank m aintains a
substantial number of branches in Latin
Am erica, M iam i Edge activities are
necessarily coordinated with those
branches and with the Latin Am erican
headquarters of the parent bank. For some
banks, the M iam i Edge serves as the Latin
Am erican headquarters itself. O ther M iami
Edges deal only with clients in specific
countries, sharing Latin Am erican
responsibilities with other Edge cities with
Latin Am erican links (e.g., Houston, Los
Angeles, and New Orleans).
Edge Act Corporation Regulations3 and
Effect on Activity. By law, Edge A ct
corporation activities are confined to
servicing the international financing
requirements of U. S.-based customers and
accounts of foreigners. The Edges may
o ffer demand and time deposits to
foreigners but not passbook savings
accounts.
Edge deposits are subject to reserve
requirements no less than those prevailing
for Federal Reserve System member banks.
The reserve requirement on aggregate Edge
deposits, however, can never be less than
10 percent. This reserve requirement is not
a severe constraint in the case of demand
deposits. Due to their size, their parent
banks are subject to higher than 10-percent
marginal requirement rates on demand
deposits (see Table 2). Some of the Edge
demand deposits may a ctu ally represent
accounts previously held at the parent
bank and now subject to lower marginal
reserve requirements at the Edge. Tim e
deposits, however, are also subject to the
minimum 10-percent reserve requirement.
Since Federal Reserve member bank
reserve requirements on time deposits vary
from 1 to 6 percent (see Table 2), the Edge
A ct corporations' cost of m aintaining time
deposits surpasses that of com m ercial
banks. This is im portant to M iami because
time deposits represented nearly half of
M iam i's 1976 Edge total liabilities and
capital.
3Edge Act corporations are regulated by Section 25(a) of the Federal
Reserve Act and by the Federal Reserve System's Regulation K
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T O T A L L IA B IL IT IE S , R E S E R V E S , AND C A P IT A L
A C C O U N T S , MIAMI E D G E A C T C O R P O R A T IO N S
December 1976
(Mil.$)
A. Demand Deposits Due to Other than Directly Related Institutions
B. Tim e and Savings Deposits Due or Issued to Other than
Directly Related Institutions
C. Other Liabilities, Reserves, and Capital Accounts
V ______________________________________________ S
As with national banks, banking Edges
cannot lend more than a tenth of their
capital and surplus to one borrower. Since
most M iam i Edges were established with
close to the $2-million minimum ca p ita l­
ization, their initial loan lim it was approx­
im ately $200,000. This lim itation has
played an important part in shaping the
character of the Edges. Some large loans
are arranged by a M iam i Edge, with
participations by the head o ffice or other
subsidiaries. M any Edges, however, direct
larger credit requests im m ediately to head
o ffices, particu larly large-scale public
sector credits. Likew ise, few Edges pur­
chase participations from nonrelated
institutions; however, they do join sub­
sidiaries or branches of their parent
institutions in some participations. The
capital and reserves of the M iam i Edges
are expanding as they receive new capital
infusions from parent banks and plow
back earnings into reserves. This growing
fin an cial base gives the Edges greater
independence and enables them to make
larger individual loans.
Growth of Miami Edge Corporation
Liabilities. Both the number of M iam i Edge
September 1977
A ct corporations and the level of M iam i
Edge fin ancial a ctivity have expanded
rapidly in recent years. Growth of
liab ilities was greatest in 1974, when
liab ilities, reserves, and capital grew more
than 70 percent. Even the more modest 25percent 1976 growth was striking (see
Table 3).
Edge A ct corporation growth has in­
creased com petition for foreign accounts
w ithin M iam i's fin ancial com m unity; local
banks have also benefited from the rising
level of international activity. One index
of M iam i's com m ercial bank international
expansion is the growth of demand and
time deposits maintained by foreign banks,
foreign governments, o fficia l institutions,
and central banks. Such deposits increased
some 85 percent between Decem ber 1973
and Decem ber 1976. M iam i's com m ercial
banks in mid-1976 maintained nearly tw ice
the volum e of foreign deposits of the Edge
corporations and approxim ately equal
amounts of foreign loans and foreign trade
financing activity.
Uses of Miami Edge Act Funds. The
M iam i Edge A ct corporations have con­
sistently accepted more deposits than
could be placed lo cally. Deposits and
loans to parent or other related institutions
have constituted from a quarter to a third
of M iam i Edge asset portfolios since 1973.
In June 1977, about 17 percent of M iami
Edge A ct assets were deposits and loans to
directly related institutions in the U. S.,
with another 12 percent allocated to
directly related institutions abroad (see
Table 4).
Still, an increasing proportion of the
M iam i Edge assets has been committed to
loans abroad; the share had reached 40
percent by June 1977. The bulk of these
foreign loans is made to firm s and in­
dividuals, although loans to nonrelated
foreign banks and foreign public in­
stitutions have also expanded in relative
significance. Loans to U. S.-based entities
have declined in importance; in June 1977,
such loans represented less than 10 per­
cent of Edge assets. Miami Edges have
found trade financing opportunities in Flori­
da and the Southeast but generally have
placed greater emphasis on foreign loans.
Conclusion. Edge A ct corporations are
increasingly performing as international
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TA BLE 2
FE D E R A L R E S E R V E SYSTEM
M EM B ER B A N K R E S E R V E R E Q U IR E M E N T S 1
(percent of deposits)
R equirem ents in Effect
Ju n e 30,1977
Type of Deposit and
Deposit Interval
(million $)
Net Demand:2
0-2............................................
2 - 1 0 .......................................
1 0 - 1 0 0 ..................................
1 0 0 - 4 0 0 ................................
Over 4 0 0 ................................
Time:23
S a v in g s ..................................
Other Time:
0-5, maturing in
30-179 d a y s ....................
180 days to 4 years. . . .
4 years or m o re...............
Over 5, maturing in
30-179 d a y s ....................
180 days to 4 years. . . .
4 years or m o re...............
Percent
Effective
Date
7
9 ’/2
1%
12%
16%
12/30/76
12/30/76
12/30/76
12/30/76
12/30/76
3
3/16/67
3
42 V t
41
3/16/67
1/8/76
10/30/75
6
42 ’/2
41
12/12/74
1/8/76
10/30/75
'Fo r changes in reserve requirements beginning 1 96 3, see Board’s
Annual Statistical Digest, 1971-1975, and for prior changes, see
Board's Annual Report for 1976, Table 13.
2{a) Requirement schedules are graduated, and each deposit interval
applies to that part of the deposits of each bank. Demand deposits
subject to reserve requirements are gross demand deposits minus cash
items in process of collection and demand balances due from domestic
banks.
(b) The Federal Reserve Act specifies different ranges of requirements for
reserve city banks and for other banks. Reserve cities are designated
under a criterion adopted effective November 9, 197 2, by which a bank
having net demand deposits of more than $ 4 0 0 million is considered to
have the character of business of a reserve city bank. The presence of
the head office of such a bank constitutes designation of that place as a
reserve city. Cities in which there are Federal Reserve Banks or
Branches are also reserve cities. Any banks having net demand deposits
of $ 4 0 0 million or less are considered to have the character of business
of banks outside of reserve cities and are permitted to maintain reserves
at ratios set for banks not in reserve cities. For details, see the Board's
Regulation D.
(c) Member banks are required under the Board's Regulation M to
maintain reserves against foreign branch deposits computed on the basis
of net balances due from domestic offices to their foreign branches and
against foreign branch loans to U. S . residents. Loans aggregating
$ 1 0 0 ,0 0 0 or less to any U. S . resident are excluded from computations,
as are total loans of a bank to U. S. residents if not exceeding $1 million.
Regulation D imposes a similar reserve requirement on borrowings from
foreign banks by domestic offices of a member bank. A reserve of 4
percent is required for each of these classifications.
Negotiable Orders of Withdrawal (NOW) accounts and time deposits such
as Christmas and vacation club accounts are subject to the same
requirements as savings deposits.
4The average of reserves on savings and other time deposits must be at
least 3 percent, the minimum specified by law.
Note: Required reserves must be held in the form of deposits with Federal
Reserve Banks or vault cash.
Source: Federal Reserve Bulletin, July 1977.
banking rather than international in­
vestment entities; each M iam i Edge has a
banking Edge perspective. The character of
the Edge A ct corporations is shaped by
Edge A ct regulations as well as by the
local environment. Regulations necessarily
lim it a ctivity to international finance.
Reserve requirements and loan lim itations
tied to capital accounts also affe ct the
September 1977
character of Edge operations. The M iami
Latin Am erican linkages--both locational
and demographic--have been prime in­
ducements for Edge A ct corporations'
operations in the city. The rapid growth of
international finance in M iam i, shown by
Edge A ct corporations and com m ercial
banks alike, is increasingly giving the city
the character of a specialized Latin
Am erican banking center *
TA BLE 3
MIAMI E D G E A C T C O R P O R A T IO N L IA B IL IT IE S AND C A P IT A L
S E LE C T E D ACCO UN TS
(million $)
December
1973
Foreign Individuals, Partnership s,
and Corporation Demand D ep o sits.
December
1974
December
1975
December
1976
June
1977
24.5
35.8
55.2
76.8
95.8
71.9
165.7
212.3
285.6
288.1
O ther Lia b ilitie s.
76.8
99.7
152.8
166.2
159.0
C ap ital A cco u n ts (Stock, S urplus,
and Undivided P ro fits)____________
28.7
47.8
52.2
59.5
88.3
. 201.9
349.0
472.5
588.1
631.2
72.9
35.4
24.5
Foreign Individuals, Partnership s,
and Corporation Tim e D e p o sits____
.
Total L iab ilitie s and
C a p ita l_____________
A nnual Growth R a te , Total Liab ilities
and Capital A cco u n ts (Percent)_____
7.3*
‘ Sem iannual
TA BLE 4
MIAMI E D G E A C T A S S E T S
(percent distribution)
Foreign Lo an s O ther than to
Directly R elated Institutions
a. To Foreign B a n k s.
b. To Foreign G overnm ents, Central Banks,
and International Monetary In stitu tio n s—
c. O ther Lo a n s O ther than to
D irectly Related In stitu tio n s.
d. Sum of Foreign Lo a n s O ther than to
D irectly Related In stitu tio n s__________
U. S . Lo a n s O ther than to D irectly
Related In stitu tio n s______________
C u sto m e rs’ L ia b ilitie s on
A cce p ta n ce s O utstand in g.
December
1973
December
1974
December
1975
December
1976
June
1977
4.1
4.4
4.8
5.8
6.2
1.6
2.0
1.8
2.1
2.3
26.2
30.1
30.1
29.1
31.8
31.9
36.5
36.7
37.0
40.3
13.5
12.0
11.1
7.5
9.2
1.7
12.8
5.6
7.9
8.4
12.7
13.1
12.4
14.9
15.0
18.8
13.5
20.2
11.8
17.1
25.8
27.3
33.8
33.7
28.9
27.1
11.4
12.8
13.9
13.2
100.0
100.0
100.0
100.0
100.0
D ep o sits Due from and Lo an s to
D irectly Related Institutions
a. In Foreign C o un tries
b. In U .S .
c. Sum of D ep o sits from and Loan s to
D irectly Related In stitution s
O ther A s s e ts (Inclu des R eserve
Rfiquirpmfintfi)
V
Total A ss e ts
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Appendix
September 1977
E D G E S B Y C IT Y
C O R P O R A T IO N S L O C A T E D O U T S ID E H E A D Q U A R T E R S C IT Y (as of Jun e 1977)
CH ICA G O
HOUSTON
LO S A N G E LE S
MIAMI
NEW YORK
SAN FR A N CISC O
O TH ER
Allied Bank
International
Bank of Am erica
International of
Chicago
Bank of America
International of
Texas
Bank of America
International of
Florida
Bank of Am erica
Bank of
California
International
Bankers Trust
International
(Midwest)
Bankers Trust
International
(Southwest)
Bankers Trust
International
(Pacific)
Bankers Trust
International
(Miami)
★
Central
Cleveland
International
Bank
Chase Bank
International
Chicago
Ch ase Bank
International
Houston
Chase Bank
International
Los Angeles
Chase Bank
International
Miami
Chem ical Bank
International of
Chicago
Citibank
International
Chicago
*
*
Citibank
International
Houston
Citibank
International
Los Angeles
Citibank
Interamerica
Chem ical Bank
International of
San Francisco
Citibank
International
San Francisco
Citizens and
Southern
International
Bank
Citibank Overseas
Investment
Corporation
(Wilmington)
Citizens and Southern
International Bank of
New Orleans
Connecticut Bank
International
*
Continental Bank
International
(Texas)
Continental Bank
International
(Pacific)
Continental Bank
International
Crocker MidAmerica
International
Bank
Crocker
International
Bank
★
Fidelity
International
Bank
Bank of Boston
International of
Los Angeles
*
First Chicago
International
Los Angeles
Bank of Boston
International of
Miami
Bank of Boston
International
First Chicago
International
Banking
Corporation
First Chicago
International
San Francisco
First W isconsin
International
Bank
New York
Girard
International
Bank
Harris Bank
V
*
116
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International
Corporation
★
H eadquarters C ity
_
J
September 1977
CH ICA G O
HOUSTON
LO S A N G E LE S
Irving Trust
Company
International
Pacific
MIAMI
NEW Y O RK
SAN FR A N C ISC O
O TH ER
Irving
Interamerican
Bank
Manufacturers
Hanover Bank
(Los Angeles)
*
Marine Midland
International
Corporation
Mellon Bank
International
I
Morgan Guaranty
Morgan Guaranty
International
Morgan Guaranty
International
Bank of Houston
International
Bank of
Bank of Miami
San Francisco
North Carolina
National Bank
(NCNB)
International
Banking
Corporation
Northern Trust
International
Bank
Northern Trust
International
Banking
Corporation
Philadelphia
International
Bank
Rainier
International
Bank
New York
Rainier
International
Bank
Los Angeles
Security Pacific
International
Bank
*
State Street Bank
of Boston
International
United California
Bank
International
United Virginia
Bank International
(Norfolk)
Wachovia
International
Banking
Corporation
(New York)
6
6
*H e a d q u arters C ity
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9
W ells Fargo
Interamerican
W ells Fargo
Bank
Bank
International
10
(SU M TO TA L BY C ITY)
24
4
3