by directing our surplus production to foreign markets, is being recognized more and more by capital as well as labor. This fact of itself justifies a constructive and active export trade policy for our country. Unlike the numerous and elaborate post-war reconstruction programs, so widely advocated during the past two years, only to be discarded and forgotten in due course of time, the Webb-Pomerene and the Edge Acts are of more than temporary significance. Both measures are essentially constructive in scope, the first has already proved its usefulness. Neither of them offers a panacea. Both, however, represent new facilities for establishing and maintaining our export trade on a basis which many years of experience elsewhere have shown to be sound and serviceable. In proportion as the present state of flux in international trade shall give way to more stable and normal conditions, this new orientation of our foreign trade policy -co-operation for commercial purposes under the Webb-Pomerene Act, and for financial purposes under the Edge Act-bids fair to prove a source of strength and protection to the business interests of this country.

Its

NOTE-The Second Federal Foreign Banking Association was formed in January, 1921, for the purpose of aiding the export of cotton. home office is in New Orleans and its capital stock is $7,000,000.

At a meeting authorized by the American Bankers' Association, at Chicago, December 10 and 11, 1920, steps were taken for the organization of a third Edge law bank with a proposed capital of $100,000,000. The capital of the proposed corporation was placed at that sum in order to give it the maximum financial ability of one billion one hundred million dollars.

CHAPTER XIX.

Synopsis of the Edge Law.1

Let us now proceed with a synopsis of the Edge Law, leaving for final consideration further reference to the important function this useful measure is destined to exercise in the world of international finance.

Organization of Corporations Operating Under This Act.

Any number of persons, not less than five, may incorporate under the provisions of the statute. Unless sooner dissolved by consent of the stockholders or by operation of law, the life of the organization shall be twenty years, with renewal by consent of the Federal Reserve Board. Its name shall receive the approval of the Board; and it may insert in its franchise any provision not inconsistent with law.

Capital Stock and Dividends.

The amount of the capital stock cannot be less than $2,000,ooo, which must be entirely paid up within twenty months-but the corporation can begin business when $500,000 in cash is subscribed. Provision is made for increase or reduction of the capital stock; but the minimum of $2,000,000 must be maintained and no dividends from capital are allowed. Ultimately, a 20 per cent. surplus from net proceeds shall be carried. At all times a majority of the shares of capital stock must be owned and held by (a) citizens of the United States; (b) corporations, the controlling interest in which is owned by citizens of the United States, chartered under Federal or State laws; or (c) firms or companies, the controlling interest in which is owned by citizens of the United States.

1See Exhibit No. VIII p. 443.

National Banks May Purchase Stock.

It is lawful for any national bank to invest 10 per cent. of the bank's capital and surplus in one or more of such Edge Law corporations.

Directors.

Only citizens of the United States are empowered to occupy seats upon the Board of Directors. Members of the Federal Reserve Board may neither own stock nor serve as directors; but notwithstanding the prohibitions of the Clayton Act, directors of banks may be directors of Edge Law corporations— provided the bank is a subscriber to the capital stock and provided the Federal Reserve Board approves of such duplication of membership upon the several boards.

Liability of Stockholders, Officers and Directors

Liability (in contract to our national banks) is confined to the amount of unpaid subscriptions. Where illegal acts create liability upon the part of the corporation, each director and officer who participates in or assents to those illicit practices is subject to responsibility for the losses resulting therefrom, and the corporation may recoup itself from their individual resources. Even dissolution of the corporation does not release the officers or stockholders from any and all liabilities previously occurring in connection with the corporation's affairs.

General Powers

In addition to those administrative powers requisite for the orderly performance of its business, under regulations prescribed by the Federal Reserve Board, certain general banking powers are conferred as follows:

(1) To purchase, sell, discount and negotiate with or without indorsement or guaranty, negotiable instruments including cable transfers and other evidences of indebtedness.

(2) To deal in securities, including the obligations of the United States, or of any State but not including shares of stock, excepting within certain limits prescribed by law and by the requirements of the Federal Reserve Board.

(3) To accept bills and drafts drawn upon them, subject to certain limitations.

(4) To issue letters of credit.

(5) To purchase and sell coin, bullion and exchange. (6) To borrow and lend money.

(7) To issue debentures, bonds and promissory notes, subject to certain general conditions and limitations laid down by the Federal Reserve Board; but in no event shall the total obligations exceed ten times the capital stock and surplus of the issuing corporations.

(8) To receive deposits outside the United States, and (as an incident to its foreign business) to accept deposits within said jurisdiction, but, where said domestic deposits are received, reserves amounting to at least 10 per cent. must be maintained.

(9) To exercise those incidental powers which in orderly banking are necessary or usual to carry out and give effect to the rights specifically granted by law.

Each of the foregoing list of nine general powers is subject to the right of the Federal Reserve Board to limit the aggregate amount of liabilities at any time outstanding in any or all of said classes of obligations.

Branches and Agencies May Be Established.

Under the regulations prescribed by the Federal Reserve Board, said corporations may maintain branches or agencies in foreign countries, and in the dependencies or insular possessions of the United States.

Power to Purchase and Hold Stock.

Provided the consent of the Federal Reserve Board is obtained, Edge Law corporations may purchase and hold shares of capital

stock in other corporations similarly incorporated under said statute; and under like permission, ownership may be had in stock of corporations not primarily engaged in commercial dealings within the United States. Fifteen per cent. of the capital and surplus may be invested in such a banking concern and ten per cent. may be invested in a commercial company; but the investment shall not exceed that percentage, excepting by special permission of the said Board; and shares of competing companies are rated as falling within said permissible percentage of ownership. However, said limitations do not apply where purchases of stock are necessary to secure liquidation of a debt; but such shares must be disposed of within six months, unless the time is extended by said Board.

Conversion of Institutions Operating under Federal or State Law.

Banking institutions operating under laws of the United States or of any individual state, and possessing the requisite capital ($2,000,000) may become Edge Law corporations by vote of not less than two-thirds of the stockholders. In such event, the conversion and the name adopted by each newly instituted corporation shall be subject to approval by said Board. The shares of capital stock may continue as they existed prior to the conversion; while the directors may remain in office until others are appointed or elected, in accordance with the provisions of law.

Franchise-How Forfeited.

Either the Federal Reserve Board or the Attorney General of the United States is empowered to bring a proceeding to dissolve the corporation and to declare a forfeiture of its rights, privileges and franchises. Such proceedings shall be in the nature of a suit for the specific purpose brought in a proper Federal court; and said decree of forfeiture must be based upon proof of failure to comply with the provisions of law. Jurisdiction lies in the district or territory in which the home office of the corporation is located.