TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
Banking Edge corporations should adhere to established
credit policies in accordance with prudent banking practices
including policies on diversification.
An effective policy on diversification would include reasonable
standards on advances to the parent institution and its
affiliates. The purpose of an Edge corporation
is to stimulate opportunities for international trade by
permitting banks and organizations with such expertise to expand
into markets to finance trade. Presently, a large part of the
business plan of some Edge corporations is accepting foreign
deposits and on-lending to the parent which, in certain
situations, may be inconsistent with safe and sound banking
practice. Generally, prudent standards would call for such
advances to be limited to a percentage
of the Edge corporation's capital and not a multiple thereof.
Examiners should carefully review all lending by the Corporation
to the parent which exceeds the Corporations's capital.
Significant concentrations which are not justified should weigh
negatively on the asset quality rating assessment of the Edge
corporation and a plan to reduce such exposures to more prudent
levels should be required. Examiners, in making such judgements,
should consider whether advances to the parent and affiliates are
primarily composed of clearing accounts or whether such advances
primarily represent on-lending to the parent.
Questions on this matter should be directed to Michael
Martinson (452-3640) or Joseph Sciortino (452-2294).
Associate Director |
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