Since the termination of the great war, our international commerce, which had been built up at a tremendous cost, has been threatened by new conditions seriously affecting its progress.

The danger confronting the United States in its foreign trade may be attributed to the following reasons: During the past year, a very serious situation has arisen in connection with the exchange rates on foreign countries. The pound sterling, the mark, the franc, the lire, and other European currencies have declined in value considerably, correspondingly raising the value of the American dollar in foreign countries. This has made it almost impossible for Europeans to buy American goods.

A more serious problem has presented itself in connection with the credit requirements of European nations,-long terms credits,-which the American exporter and banker have found it very difficult to extend.

Prior to the adoption of the Federal Reserve System in the United States, the greater part of our foreign trade was carried on by the larger English banking houses and by some strong and internationally established private banking establishments in New York and in England, which had foreign branches throughout the world. The smaller institutions of the country could extend assistance to the American foreign trade merchant only to a very limited extent.

As far back as 1913, steps were taken to procure for the merchant of this country a larger participation in foreign trade and commerce The Federal Reserve Act provided, among other things, that any national banking association having a capital and surplus of at l< one million dollars, might, upon securing the approval of the Federal Reserve Board, establish branches in foreign countries and dependencies of the United States.

In 1916, an Amendment was passed to the Federal Reserve Act per-mitting national banks having a capital and surplus of at least one million dollars to cooperate in the establishment or ownership of American banks or corporations principally engaged in foreign hanking, by investing to an amount not to exceed ten percentum of their capital and surplus in such institutions "chartered or incorporated under the laws of the United States or of any State thereof."

Under the Amendment to the Federal Reserve Act, so passed, certain banking institutions were instrumental in organizing banking corporations of the kind contemplated by the Amendment, mainly for the purpose of financing American exporters and importers.

However, they could extend their help only to a limited degree and frequent appeals were made for Federal incorporation, which, it was believed, would greatly lower the risk in putting out capital in foreign branches. As a consequence, new legislation was called for. The national banks of the country, moreover, felt the need of Federal legislation which would entitle them to the benefits and protection of a Federal charter, enabling them to compete for business in foreign countries upon a larger .and more profitable scale.

On September 17, 1919, the McLean Bill became a law, under the provisions of which, national banks, without regard to the amount of their capital and surplus, are permitted to subscribe in amounts not in excess of five percentum of their capital and surplus, to the capital of corporations of the kind contemplated by the Edge Act, thus enabling national banks to further contribute to the financing of our foreign trade.

The Edge Act had its introduction into the United States Senate on July 15th, 1919, and became a law on December 24th, of that year. By the passage of the Edge Act, supplementing the Amendments to the Federal Reserve Act and the McLean Act, providing for participation by national banks in the organization of corporations principally engaged in foreign banking and financing, it is hoped that much of our great foreign trade can be retained to the benefit of American manufacturers and producers.

The Act provides for the Federal incorporation and regulation of banking institutions for the purpose of engaging in foreign banking or other foreign financial operations or for engaging in such operations in a dependency or insular possession of the United States, either directly or through the agency, ownership or control of local institutions in such places.

Briefly described, the Act distinguishes between two classes of corporations-one class doing principally a banking business, the other an investment business, taking long time paper, including bonds and mortgages and issuing their own debentures against them.

As to the first class, those corporations carrying on a banking business may conduct every nature of financial operation with the exception of receiving deposits in the United States, except such as may be incidental to or for the purpose of carrying out transactions abroad.

Both classes of corporations are prohibited from carrying on any part of their business activities in the United States, except such as, in the opinion of the Federal Reserve Board, may be incidental to their foreign or international business.

They may not become members of the Federal Reserve System and are not authorized to invest in any corporation other than a banking corporation an amount in excess of ten percentum of their own capital and surplus without the approval of the Federal Reserve Board.

The procedure contemplated under the Edge Act for foreign financing, is one by which a party sells merchandise to a second party who is penniless and yet obtains actual money in the transaction. The American exporter or manufacturer may sell his goods to an impoverished foreign purchaser-a foreign government or a private concern.

Corporations organized under the Edge Act may accept collateral from the purchaser such as is acceptable to the Federal Reserve Board, and against this may issue debentures to be sold to investors, the proceeds of which sale will be paid to the American seller.

The Act is very extensive in its operations, and powers are granted to these corporations permitting them to accept even mortgages on the plants or other real property of the purchasers.

A foreign concern in need of raw material may obtain it by giving a mortgage on its plant, and eventually, by turning this raw material into finished products, will be enabled to redeem its collateral and to put aside a little profit besides.

While it is true that some of the leading banking institutions of the country have rendered a noticeable service to the commerce of the nation in the form of short term credits, their liabilities are, however, limited. Long term credits, that is, for periods beyond ninety days, are made possible by the Edge Act. For example, a corporation located in Belgium is desirous of purchasing American machinery for the rebuilding of its factories. The transaction called for is on the basis of "credit extension" to the Belgium firm, which may have given, as security for the purchase price, corporate bonds maturing eight or ten years hence. Even though this security is acceptable as re gards safety to the American manufacturer, he is still unable to extend such long term credit and is unable to carry the bonds until maturity, because this would result in a tie-up of his capital. The seller, therefore, would be compelled to lose the sale unless the bonds can be quickly converted into cash.

The Edge Act for foreign financing would come in as of direct assistance. The American manufacturer could then arrange with a corporation organized under the Act to take such foreign securities, advance the cash, and within such limitations as the law and the Federal Reserve Board prescribe, issue its own notes, which could then be offered to the public for investment. The result of this roundabout financing is that the purchaser at once receives the purchase price and the European buyer the goods. The credit is passed to the American investor.

The Edge Act, therefore, provides for the organization of corporations given the right to engage in international and foreign banking, and in which national banks may participate to a limited extent, thereby affording a means of making available quick and large capital for the purpose of extending credit to Europe.

It provides for a well regulated system of financing our foreign trade, whereby such collateral as foreign purchasers possess may be taken in payment of American goods. While it is true that State institutions have been important factors in the financing of American foreign trade until the present, still the corporations which may be organized under the Edge Act will come as an additional inducement offering the assistance of the American investor and banker on a much wider scale than heretofore possible.

Following is given the text and of the Edge Act in relation to foreign financing, which became a law on December 24, 1919,