In 1919, after the "peg" was removed from sterling, franc, and lire exchange, rates declined to hitherto unknown levels and speculation in exchange became excessive. American exporters suffered, and a wide demand arose to have the exchange situation "corrected." The needs of "suffering Europe" also played a prominent role in the plea for action. Various private and public proposals were presented, and some were adopted. Among these was the plan of Senator Edge of New Jersey, who advocated the federal incorporation of companies engaged in foreign banking and finance, with the multiplex object of remedying the exchange situation, extending quick credits to European purchasers, and thus increasing the demand for our exports, stimulating our foreign trade, and developing our new merchant marine. The general purpose was " to provide for the establishment of a federal system of international banking or financial corporations operating under federal supervision with powers sufficiently broad to compete with similar foreign institutions and to afford to the American exporter and importer at all times a possible means of financing his foreign business."

This act logically follows previous legislation to promote foreign trade. The Federal Reserve Act of 1913 enabled national banks with a capital and surplus of at least $1,000,000 to establish branches abroad. An amendment in 1916 permitted banks of this size jointly to establish and own such American banks or corporations as were principally engaged in foreign banking, by investing up to 10 per cent of their capital and surplus in such institutions "incorporated under the laws of the United States or of any state thereof"; but no provision existed at that time for federal incorporation of such institutions in which it authorized national banks to invest. And in 1919 the McLean Act was passed providing that national banks, without regard to the amount of their capital and surplus, might subscribe up to 5 per cent of their capital and surplus in stocks of federal or state corporations principally engaged in such phases of international financial operations as might be necessary to facilitate exports from the United States. The McLean Act enabled national banks to invest in the stocks of corporations whose business was more in the nature of an investment company's than that of a commercial banking institution. 1

1 See Federal Reserve Bulletin, Jan. 1921, Pp. 71-72.

Before the passage of the Edge Act certain foreign banking corporations had been established under state law; for instance, the Asia Banking Corporation, the Foreign Discount Corporation, the Mercantile Bank of the Americas, Inc., etc. Some of these corporations were operated partially under control of the Federal Reserve Board in cases when national banks contributed to their capital, since they were then required to restrict their business according to rules and limitations set by the board. In the passage of the Edge Act, however, it was thought that control through agreement with the board was not as satisfactory as that exercised through incorporation under federal law. It was felt that the time would come when the conflict of dual control by the board and the state banking departments might prove embarrassing or might operate to restrict the activities of the corporation, and that a banking corporation, being essentially a national enterprise with some of its stock owned by national banks, should have the protection of a federal charter and enjoy the prestige of such charter in foreign trade competition.