DEFINITION of 'Article XII Company'

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. 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 are exempt from the Federal Reserve System's reserve requirements.

BREAKING DOWN 'Article XII Company'

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.

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.

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