As a result of this provision of the Federal Reserve Act two national banks have opened foreign branches. The National City Bank of New York in 1920 operated a chain of 55 branches, located in Hispanic America, Europe, and South Africa. The First National Bank of Boston has one branch in Buenos Aires.
Another method of operating foreign branch banks is for a national or state bank to organize under state charter a subsidiary-corporation, which in turn opens and operates the foreign branches. Control of the subsidiary is retained by several means, such as making the stock of the subsidiary transferable only along with an equivalent number of shares of the parent bank, or having the shares of the subsidiary owned by the officers of the parent company, or making use of the legal privilege to invest 10 per cent of the parent company's capital and surplus in the subsidiary. Thus the International Banking Corporation is affiliated with the National City Bank of New York and operates 29 branches in the Far East, England, France, the Dominican Republic, and Panama. The Mercantile Bank of the Americas, affiliated with Brown Brothers and Company, J. and W. Selig-man and Company, Guaranty Trust Company of New York, the National Shawmut Bank of Boston, the Anglo-London Paris National Bank of San Francisco, and the Hibernian Bank and Trust Company of New Orleans, has branches in Paris, Barcelona, and Madrid, and operates 31 other branches through affiliated chartered companies in Colombia, Peru, Venezuela, Brazil, Nicaragua, Cuba, and Costa Rica. The Asia Banking Corporation, closely affiliated with the Guaranty Trust Company of New York, operates eight branches in Manila and China. The Park-Union Foreign Banking Corporation, affiliated with the National Park Bank of New York and the Union Bank of Canada, operates five branches in Paris, China, and Japan. On the other hand, the First National Corporation of Boston (affiliated with the First National Bank of Boston), the Shawmut Corporation (affiliated with the Shawmut National Bank of Boston), the French-American Banking Corporation of New York (affiliated with the National Bank of Commerce of New York, the First National Bank of Boston, and the Comptoir National d'Escompte de Paris), and the Foreign Credit Corporation of New York, have not as yet opened foreign branches.
All the above have one or two branches each within The United States and are carrying on business under an agreement with the Federal Reserve Board. The charters of these subsidiary corporations are liberal indeed; for instance, that of the International Banking Corporation, chartered in Connecticut, after specifying a long list of activities in which the corporation may engage, allows it "to transact and engage in any other lawful business whatsoever." For the most part, however, these corporations actually engage in nothing but purely banking business. Exceptions in this respect are the Mercantile Bank of the Americas - which operates a subsidiary, the Mercantile Overseas Corporation, for trade and development work in foreign countries - and the Foreign Commerce Corporation of America established by the Morgan interest to engage in foreign trade.
In order to give all national banks, little as well as big, an opportunity for sharing in the benefits of foreign trade, the Federal Reserve Act was amended September 7, 1916, to permit any national bank to subscribe an amount not exceeding 10 per cent of its capital and surplus to stock of banks organized to transact a foreign banking business. These banks are authorized to receive only such deposits in this country as may be incidental to or connected with their foreign business. They are authorized to establish branches abroad or they may operate through agencies there, and they may have either state or federal charters. Before the board authorizes them to operate they are obliged to enter an agreement to restrict their operations according to the limitations set by the board; failure to comply with these regulations, or failure of the parent or branch, may lead to the revocation of their right to do business. Under this scheme of cooperative ownership several institutions have been opened by groups of national banks and foreign branches or connections have been established; for example, the American Foreign Banking Corporation, owned by banks all over the United States and Canada, and the International Acceptance Bank, Inc., owned by banking houses of the United States, Switzerland, Holland, Sweden, and England, and closely co-operating with the French-American Banking Corporation of New York, the American International Corporation of New York, and other foreign banking institutions.