Article XII Company

An Article XII Company is an investment company chartered under Article XII of the New York State Banking Law. Established to finance international banking transactions, they are usually owned by foreign banks. Article XII companies typically engage in businesses like those of internationally oriented commercial banks, such as lending to foreign borrowers, foreign exchange trading and the issuance of letters of credit.

The difference is that Article XII companies don't usually buy equities, although they can sell debt securities to the public without the oversight of the Securities and Exchange Commission (SEC). Moreover, these companies cannot accept deposits in New York state, and only outside the state with the approval of the New York State Banking Board. They can, however, accept credit balances in the state of New York. These credit balances are not classified as deposits, nor are the accounts in which they are held classified as demand-deposit accounts. For this reason, they are exempt from the Federal Reserve System's reserve requirements.

Article XII companies are described by New York state's Banking Department as "being unique to New York." The laws that provide for investment companies date from 1890. The first charter for an Article XII company was granted to Banque Nationale de Paris, France’s largest bank, in 1919, in order to open the French-American Banking Corp. in New York.

For many years, the policy of the state's Banking Department policy was to allow foreign banks to establish investment companies only if there were no other practical means of entering the New York market. This explains the existence of many of the current Article XII companies, including French-American, Fiduciary Investment Corp., and Sterling Banking Corp.. From 1950 to 1975, the New York State Banking Department and the Federal Reserve Board agreed that no new Article XII companies would be formed; any new foreign applicants for Article XII status would instead be asked to seek agency or branch status. This would afford them a similar organizational structure, while allowing the Federal Reserve to monitor their operations more tightly.

In the late 1970s, the New York State Banking Department began chartering Article XII companies again. Today, several foreign banks, as well as a number of domestic finance companies like American Express, Western Union and General Electric, have Article XII companies in New York. Many of these organizations also have deposit-accepting banks in New York.