*THE GROWTH AND DEVELOPMENT OF THE BANKING ACTIVITIES OF TRUST COMPANIES BY JOHN FRED BELL A. B., Muskingum College, 1923 A. M., University of Illinois, 1924 THESIS Submitted in partial fulfillment of the requirements ' ” FOR THE DEGREE OF DOCTOR OF PHILOSOPHY IN ECONOMICS IN THE GRADUATE SCHOOL OF THE UNIVERSITY OF ILLINOIS, 1928 URBANA, ILLINOISUNIVERSITY OF ILLINOIS THE GRADUATE SCHOOL May 15,_________192&. I HEREBY RECOMMEND THAT THE THESIS PREPARED UNDER MY SUPERVISION BY_____JOHN, ERED BELL__________________________ FMTT-rr Trn THE GROWTH AND DEVELOPMENT OP THE BANKING_______ ._______________ACTIVITIES OF TRUST COMPANIES_______________ BE ACCEPTED AS FULFILLING THIS PART OF THE REQUIREMENTS FOR THE DEGREE rm DOCTOR OF PHILOSOPHY •C., Department Committee on Final Examination* J ’■ *”* r 7,PREFACE The banking activities of trust companies have received little attention by the writers on finance. All of the books and articles which deal with trust companies have emphasized fiduciary activities and not banking. In view of this fact, this study has been undertaken in the hope that it might emphasize that an interesting field of banking development is being overlooked by the writer in finance, who so frequently refers to "state banks and trust companies" as if they were one and inseparable, and not deserving of separate consideration. The fiduciary development of trust companies has received many adequate treatments since 1900, when the trust company began to take a prominent part in financial affairs. However, none of these treatments emphasize the development of the trust company as a bank from the tine when it was an unimportant adjunct to insurance business, to the present time when its banking resources equals the resources of nationally chartered institutions. In the study the author has treated the problem historically, chronologically and statistically. The principal sources from which the material was obtained for this study were found in the Laws of the various States and the discussions in the Legislative chambers, which were contemporary with the passage of the laws or the granting of the charters to trust companies. These sources furnished material for the historical and chronological treatment, and for the present status of trust companies under recent laws. The statistical data was found mainly in the Comptrollers Annual Reports, and the Annual Reports of the State Banking Departments of L.iii the various states. Another source of statistical information which was used, is an annual publication (1903 to date) of the United States Mortgage and Trust Company of New York, known as "Trust Companies of United States." In this publication are complete statements of individual trust companies. Besides these sources, the author has had access to many excellent treatments of the fiduciary development of trust companies, which have been published in the past twenty-five years. The nature of the study is such as to demand a rather close adherence to the facts and figures as found in the laws and published statistics. An attempt has been made, however, to present the material in as readable a form as possible by relegating most of the statistical material to an Appendix, and by arranging the subject matter in chronological form. The study is divided into six parts: I. Introduction. The Banking Activities of Trust Companies before I85O, in whioh a study is made of the charters and activities of trust companies. In this period the concerns were mainly fiduciary, as their name implies, however a few of the companies have a very restricted banking business. II. The Banking Activities of Trust Companies from 1850 to i860, in which trust companies change their form by discontinuing insurance and annuity business, which was a part of their operations before I85O, and banking business was added. III. The Development of Banking Activities of Trust Companiesiv since 18>£>0, in which their service and operations are taken up, as well as certain controversies and difficulties which arose along with their development as hanks. IV. The Legal Status of Trust Companies, in which a study is made of statutes and cases pertaining to trust companies. The points of especial study are: Incorporation, Capital Stock, Taxation, Reserve Requirements, and both Federal and State Supervision. V. The Trust Company as a Bank, in which the extent of the banking operations is treated, together with a comparison of the trust company with other financial institutions. The status of banks and trust companies under the Federal Reserve is included in this division. VI. Conclusion, in which an effort is made to summarize the results of the study. The author wishes to acknowledge his indebtedness to members of the Economics Seminar for the benefits derived from discussion in that group. To Professor Ivan Wright, under whose direction this study was prepared, special acknowledgment is due for valuable aid and direction. The author is likewise grateful to Professor U. H. Hunter for his interest and help with the discussion on taxation. He also wishes to express his gratitude to other members of the Economics Staff who have aided directly or indirectly in the preparation of this study, and especially Professor N. A. Weston, whose suggestions and criticisms have been greatly appreciated. Urbana, Illinois John Fred Bell May, 1926^TABLE OF CONTENTS v Page Preface............................................... ii-iv Chapter I. Introduction. The Banking Activities of Trust Companies up to 1850 .......... . 1-21 A brief historical sketch of Trust Companies. Anti-banking provisions of the first charters. The beginning of banking operations by the early trust companies. The Ohio Life Insurance and Trust Company; its operations and failure. Changes in the latter part of the period. The banking operations of trust companies near the end of the period. Summary. Chapter II. Banking Activities of Trust Companies from 1850 to 1880........................... 22-57 Economic conditions and changes after 1850. The beginning of Safe deposit business by trust companies. The beginning of Savings bank business by trust companies. Changes during and after the Civil War; the National, banking system; the decline of State banks; legal prohibitions to chartered banks. The beginning of the Modern Trust Company. The first reports. Banking activities of Trust companies toward the end of the period. Summary. Chapter III. The Growth and Development of Banking Activities of Trust Companies since 1880 • . 58-116 The growth of trust companies in numbers. Growth in resources. Growth in individual deposits. Causes for the growth; trust companies were not taxed as banks; trust companies were not subject to reserve laws as banks; trust companies were not regulated or supervised in their banking operations. Com- Barative earning power of trust companies. ontroversies between chartered banks and trust companies over - Reserves, Regulation, Supervision. The New York Clearing House controversy. Trust Companies and the Panic of 1907. Summary.vi Page Chapter IV. The Legal Statue of Trust Companies . . 117-157 What is a trust company? Cases and court interpretations. What constitutes hanking business by trust companies? Cases and court interpretations. Incorporation of trust companies by general laws or special acts: examples. Tendencies of recent banking laws for trust companies. Study of present banking laws for trust companies with reference to: Incorporation, Capital stock, Beserve requirements, Taxation, Supervision. Grant of fiduciary powers to banks under Federal Reserve Act, Section 11 (k). Controversies over Section 11 (k). Enabling acts of the states. Summary. Chapter V. The TruBt Company as a Bank ...... 158-304 Summarization of trust company activities. Extra-legal practices of trust companies. OompariBon of banking power of National banks and Trust companies 1903 and 1926. Comparison of total resources of New York Trust Companies with other banking institutions, 1893-1923. Comparison of National banks, State banks and Trust Companies in total resources, 1875-1937. Comparison of banking institutions under supervision of New York 8tate Banking Department, 1880-1928. The approximate amount of fiduciary business of trust companies. Comparison of Trust Companies with State and National banks in Average Capital, Average Net Worth, Average Total Deposits. Cash reserves and Total reserves of trust companies, 1875-1927. Comparison of earnings of New York Trust Companies. Trust Company Failures. Trust Companies and the Federal Reserve Act. Summary. Chapter VI. Conclusion 205-214vii Page Appendix............................................ 215-237 A. . Table I. Number of Trust Companies in United States......................... 215 B. Table II. Capital stock, Deposits, and Dividends together with Taxes paid for State and local purposes by Trust Companies in New York March 15, 1882-March 15, 1887. . . 216 C. Table III. Taxes paid by New York Trust Com- panies in various years. 1884- 1900 ................................. 217 D. Table IV. Individual Deposits and Cash and Cash Items of Trust Companies 1875-1927 218 E. Table V. Capital, Par Value, Bid and Asked § rices of Trust company shares in ew York, Chicago, Philadelphia and Boston, May 1895 to May 1925 • . 219 F. Table VI. Number, Capital and Surplus, and Total resources of National Banks, State Banks and Trust Companies. 1875-1925 220 0. Table VII. Total Reserves and Cash reserves of Trust Companies. 1875-1925 • . 221 H. Table VIII. Growth and Present Status of State Bank and Trust Company super- vision . ............................ 222 I........... General Powers Granted to Trust Companies in New York ...... 223 J. Table IX. Number of Trust Companies, their Capital and Total Assets and Liabilities by States................................. 224 X........... Digest of State Laws for taxa- tion of Trust Companies, National and State Banks...................... 225 L........... Section 11 (k) of the Federal Reserve Act.......................... 226 M. Table X. Total Resources of Institutions Subject to Banking Department of New York State ..................................... 227vili Page N. Table XI. Number, Net Worth, Average Net Worth per company, Capital Stock and Average Capital 8tock for: a. Trust Companies b. National Banks (1904-1926) c. State Banks .................. O. Table XII. Number of National and State Banks and Trust Companies, together with Total and Average Deposits. 1900-1926 ... ............. P. Table XIII. Statement of New York Trust Com- panies showing conditions before, during and after the Panic of 1907 ............................ Q. Table XIV. Earnings, Interest Paid, Expenses, Taxes and Dividends paid by New York Trust Companies. 1880-1910 . R. Table XV. Aggregate gains and losses in Deposits in Specific Trust Companies of New York as shown in December 1908 . ......................... 232 S. Table XVI. Trust Company Failures. 1893- 1925. (Bradstreet's Reports) • . 233 T. Table XVII. Trust Company Failures by States. 1892-1925 .................. 234 U. Table XVIII. Total Number of Trust Companies in Operation by States. 1892- 1925 235 V. Table XIX. Number of Failures of Trust Com- panies, State Banks and National Banks together with Liabilities. 1892-1925 .................. 236 W. Table XX. Number, Capital, Surplus and Un- divided Profits of National Banks together with their Dividends and Earnings. 1900-1926 ................ 237 Bibliography .......................................... 239-248 Vita ..................................................... 249 228 229 230 231ix INDEX TO TABLES IN THESIS Table I* Number and Total Resources of Trust Companies of United StateB..................63-a Table II« Individual Deposits of Trust Companies, State Banks and National Banks ...... 64-a Table III. Earning Power of thirty Banking Institutions in New York City. 1890. .... 92-a Table IV. Earnings of sixteen Trust Companies in New York City. 1890........................ 92-b Table V. Capital Stock required for Trust Companies doing a Banking business...........................136 Table VI. Trust Company Reserve Requirements by States ••••• ............................. 140 Table VII. Aggregate Balances of National Banks and Trust Companies during the years 1903 and 1926, and the percentage of Total Resources of each Institution to Total Banking Power of all banks of United States ........................................... 166 Table VIII. Status in three, ten year periods of National, 8tate and Savings Banks and Trust Companies of New York. 1893-1923 • 168 Table IX. Reports of Trust Companies in New York. 1903-1910 ............................ 181 Table X. The Number of National Banks and the number authorized to exercise fiduciary powers together with the number exercising such powers...........................199X INDEX TO GRAPH8 Graph I. Numerical Increase of Trust Companies in United States 1875-1927 • ••••••• 60-a Graph II, Number of State Banks, National Banks and Trust Companies 1875-1927 ..... 62-a Graph III. Increase in Individual Deposits of National banks, State banks and Trust Companies 1875-1927 .......... 64-al Graph IV. Individual Deposits, Cash and Cash Items of Trust Companies 1875-1926 . . 90-a Graph V. Percentage of Cash to Individual Deposits 1875-1925 .............................. 90-b Graph VI. Capital and Surplus of National banks, State Banks and Trust Companies 1875-1927 170-a Graph VII. Total Resources of National Banks, State Banks and Trust Companies 1875-1927 . . 171-a Graph VIII. Total Resources of Institutions subject to the Banking Department of New York State 1880-1927 ....................................... 172-a Graph IX. Average Capital Stock and Average Net Worth of National Banks, State Banks and Trust Companies 1904-1926 ......... 176-a Graph X. Average Deposits per company of National Banks, State Banks and Trust Companies 1900-1926 177-a Graph XI. Ratio of Cash to Total Reserve of Trust Companies 1875-1926 179-a Graph XII. Earnings, Interest and Dividends Paid by Trust Companies in New York 1881-1910 ... 186-aCHAPTER I THE BANKING ACTIVITIES OF TRUST COMPANIES UP TO 1850CHAPTER I THE BANKING ACTIVITIES OF TRUST COMPANIES UP TO 1850 The purpose of this study is to show the growth and development of the banking activities of the financial institution now known as the trust company. The fiduciary activities of the trust company will be mentioned only incidentally. Before taking up the banking activities, it may be well to sketch briefly, the development of the trust company up to the time when anything resembling bank activities appear. The trust company in the original sense in which it was known was that of a corporate fiduciary serving in the oapacity of executor, administrator, guardian, assignee, trustee, etc. This particular service did not grow independently and of its own accord, but came as an adjunct to insurance business. Insurance companies were in existence long before any attention was given to fiduciary business by corporations. Finally in 1822 the Farmers Fire Insurance and Loan Company of New York was given trust powers, 1. Some of the early insurance companies were: 1801 - The New York Insurance Company and the Columbian Insurance Company (New York) 1807 - The Phoenix Insurance Company (New York) 1814 - Rensslaer and Saratoga Life Insurance Company and Dutchess County Insurance Company (New York) 1815 - Union Insurance Company (New York) 1812 - The Pennsylvania Company for Insurance on Lives and Granting Annuities (Pennsylvania) 181^ - Massachusetts Hospital Life Insurance Company (Massachusetts)2 which ms the first grant of its kind in America. The second company to be given trust powers was the New York Life Insurance and Trust Company incorporated in 1830; this was the first company to use the word “trust" as a part of its corporate title. Following this came the Pennsylvania Company for Insurance on Lives and Granting Annuities, incorporated in 1836, and the Gir ard Life Insurance and Trust Company of the same year, both of Philadelphia.2 3 These institutions are significant in the development of trust companies not only because they were the first in the field, but because their charters served as prototypes for subsequent charters. Other companies were granted charters, but 2. All trust companies chartered in New York up until 1888 were chartered under a special legislative grant. The general law of corporations did not apply. By Article 8 of the Constitution, the creation of corporations by special legislation is prohibited, except for municipal purposes, and in cases fthere in the judgment of the Legislature, the objects of the corporation cannot be attained under general laws. This provision was likewise made to apply to savings banks of the state. It was generally the case that the charters of all the early trust companies were of the nature of special legislative grants. Section 16, Article 3, of the Constitution also provides that "no private or local bill, which may be passed by the Legislature, shall embrace more than one subject, and that shall be expressed in the title." This seems to have been totally disregarded in granting of powers to the companies mentioned in the following pages. 3. The Farmers Fire Insurance and Loan Company became the Farmers Loan and Trust Company in 1835* The New York Life Insurance and Trust Company is now the Bank of New York and Trust Company. The Pennsylvania Company is the same and the Girard Life Insurance and Trust Company is now the Girard Trust'Company. The Farmers Loan and Trust Company is of especial interest because of its being involved in the famous Income Tax case of 189^. Pollock vs. Farmers Loan and Trust Company. 157 U.S. *J-29 158 U.S. 601.3 only these four have lasted to the present time. The first company to he made exclusively a trust company in the United States was the United States Trust Company of New York chartered in 1353. There were other companies chartered in the meantime which had the word "trust" in their corporate name, but they were of short duration. The growth of trust companies and trust business after 1320 is attributable to the growth of wealth and private fortunes. They were appointed in fiduciary capacities in order to guarantee perpetual trusteeship, thus insuring against the hazards involved in individual trusteeship in administering wealth and fortunes. Trust business grew in cities of a fair amount of concentration of wealth which came along with the internal growth and expansion of the country. As a result of the growth of trust business, which, of course, meant a considerable accumulation of funds in the hands of these companies, there was present the temptation for the companies to engage in banking enterprises. It is very clear that the legislators, in granting the charters to certain of the early companies, were fearful lest they should engage in banking and speculative ventures. Such is the case in the granting of powers to the first company, The Farmers Fire Insurance and Loan Company. This company was incorporated for the purpose of "accommodating the citizens of the state residing in the country with loans, on 5 the security of their property." The loaning powers granted to *J-. Laws of New York, 1353* Chapt. 20^. 5« Laws of New York, 1322. Chapt. 50, sect. 1. the company reads: "The said corporation shall have authority to make loans on security of bonds and mortgages, or conveyance of improved farms, houses, manufactories, or other buildings, or on any other real estate, or on the security of any of the stocks hereinafter mentioned; and to call in the said loans, or any part thereof, and to reloan the same on like securities as occasion may require, taking and holding any such property, either by mortgage or fee-conditional or fee-simple, or otherwise, and to be seized of, and to hold the same until any such estates or property can be conveniently sold and converted into money or other such personal property, to,the full discharge of the payment of such loans."® These are clearly investment banking powers, and must have been recognized as such by the legislature for the next section of the act would indicate that some fear may have existed that commercial banking powers would be assumed. It reads: "That nothing in this act shall be so construed as to authorize the said corporation to receive any deposit or deposits, nor to discount any promissory note, bond, due bill, draft, or bill of exchange, nor shall it be so construed as to allow any banking business or privileges whatsover."? Three months after the granting of the original charter, the company asked for a further extension of powers to include the "execution of any and all such trusts as any individual trustee or trustees might do;" they were prohibited from engaging in any "traffic in any kind of stocks or goods or merchandise," and, at the same time, they were again prohibited from using their powers for banking purposes in any way. Another company which came into existence at about the same time was the Life and Fire 6. Laws of New York, 1222. Chapt. 50, sect. I. 7- Ibid., chapt. 50» sect. IV. 5 Insurance Company of New York chartered in 182^. In addition to having the same powers granted the Farmers Fire Insurance and Loan Company, it was granted powers to do annuity and coal mining business, and to issue bank notes. Little is known of this company save that it became insolvent in less than two years after being incorporated, and passed off the scene. Another company of this period was the Morris Canal and Banking Company, incorporated December 31, 182^ by an "Act to incorporate to form an artificial navigation between the Passaic and Delaware rivers," by the Legislature of New Jersey. The charter powers of the company were primarily to build a canal, however, it was also given banking and trust privileges as follows; "That the said company shall and may be, and axe hereby made capable of using any part of their capital which shall be paid in for banking purposes as aforesaid, for the following additional purposes that is to say, in buying and selling bills of exchange, or the stock of any body or bodies politic, and in loans upon bonds and mortgages."® The company was given trust powers to act "in the same manner and to the same extent as any private trustee or trustees could lawfully do." These powers together with note issue privilege which it was allowed under the banking privilege, made the powers 8. Laws of New Jersey, 182^. Pp. 158-71.6 q nearly complete.' The next company of significance, and the first one to have the word «trust" in its title, was the New York Life 10 Insurance and Trust Company, chartered in 1330. This company is of especial interest because of Section II of the charter which empowered it: "To receive moneys in trust, to accumulate the same at such rate of interest as may be obtained or agreed upon, or to allow such interest thereon as may be agreed upon, not exceeding, in either case, the legal rate."ll From the beginning the company followed the policy of paying interest on deposits—a thing which in later years was to become the chief point of contention between banks and trust companies throughout the country. It is likely tha,t the directors of the company, in instituting this part of their policy, had no intention of competing with the banks for deposits, but their notice soon after the opening of the bank specified that: 9. It seems to have been customary in this period around the 1325-30•s to grant banking powers to manufacturing and navigation, and later railroad companies. Trust powers were granted to fire and life insurance companies, as well as note issue or banking privileges. Thus in addition to the one mentioned, there were in New Jersey the New Jersey Manufacturing and Banking Company (Laws of New Jersey, 1333, pp. 113 and 157-62) the Salem Steam-Mill and Banking Company (Laws of New Jersey, 1323, p. 1^5). Reference is made (Clark. V.S., "History of Manufacturing in United States 1607-1860"; to a Boston Manufacturing Company which owned and operated a Massachusetts Life Insurance Company with a capital of $500,000, which controlled nearly ten times that amount of investment funds (p. *1-60). The Niles Register (vol. November 1*1-, 1335, p. 131) refers to "The New Orleans Gas Light and Banking Company" which purchased the branch bank of United States in New Orleans. ' ’ , - 10. Laws of New York, 1330. Chapt. 75* 11. Laws of New York, 1330. Chapt. 75» sect. II.7 "This company will receive money in trust, and issue certificates therefor, on the following conditions. No deposite shall he received under one hundred dollars, nor shall any sum less than that amount be drawn unless as the balance of an account. All moneys deposited in trust for a shorter time than one year shall be deposited for a certain number of months, not less in any case than two months from the date of deposite. Interest at the rate of three percent, per annum will be allowed on moneys not for a longer term than four months. Where the term shall exceed four months and be less than a year, four per cent will be allowed. Where the deposites shall exceed a year, the rate of interest shall be settled by special agreement. In all cases where the moneys in trust shall not be withdrawn at the expiration of the period for which they were deposited in trust, they shall remain with the company for another period not less than thirty days, and be allowed the same interest as if deposited for the extended period. Where the trust shall exceed a year, interested will be made payable before the principal shall become due annually, half yearly, or quarterly, as may be agreed upon. Where the trust shall be for a shorter period than a year, no interest will be paid until the principal shall become due."12 The paying of interest on deposits seems to have aided materially the increase in deposits of the company, and may have been viewed with some alarm, for the charter was amended April 29, 1634, to limit the trust deposits and loans of the company _ .. 13 as follows: "The amount of money which the New York Life Insurance and Trust Company shall have in trust in deposite or on loan at any time, shall not exceed five million dollars, and the amount of its outstanding loans shall not at any time exceed five million dollars; but the said company may at any time receive in deposite, and loan out, any money which may be deposited with them by the court of Chancery, or any of the courts of law or surrogates courts of this State, notwithstanding the limitation contained in this act." 12. Perine, E.T., "The Story of the Trust Company," pp. 26-27. 13. New York Senate Journal, 1634, pp. 412. This action was brought about by the legislative body, and not by the company itself.3 The apparent success of the New York Life Insurance and Trust Company, together with the apparent popularity of the new type of company, brought forth, nearly simultaneously, the petition for charter from several other organizations. Each petition being presented in New York State was referred to a "committee on banks and insurance companies," who, in turn, 14 reported either favorably or unfavorably on the petition. None of these early companies of New York came any nearer doing banking business than paying of interest on deposits. However, a company appears on the scene, bearing the same name as all the previous ones, and engaging in powers far more extensive than any of the companies heretofore mentioned. This was the famous Ohio Life Insurance and Trust Company of Cincinnati, chartered 15 under the laws of Ohio, February 24, 1334. It began business 16 the following year. The capital stock of the company was #2,000,000, and the charter which gave it a perpetual existence did not differ in any fundamental respect from any company heretofore chartered in its trust provisions; however, its charter also provided for full banking powers. This company resembled a bank more than any of the previous companies men- 17 tioned, for it had a banking department and a trust department. 14. One of the first to apply was the American Life Insurance and Trust Company on February, 1333, which was reported on unfavorably. New York Assembly Document, 1334, vol. I, No. 40, January 21, 1334. Others were the Columbian Life Insurance and Trust Company, The Long Island Life Insurance and Trust Company. None of these were chartered. Assembly Document, op. cit. 15. Laws of Ohio, 1334, pp. 63-74. 16. Bankers Magazine, vol. VII, p. 14, July, 1352. 17. Only #1,000,000 of the company was for banking purposes.9 A statement put out by the company reveals that, at the end of four years they had received nothing on the sale of annuities, and that the life insurance premiums covered only twenty lives . 13 and amounted to only $4,921.75* It appears, too, that the trust business was either not well understood, or else not particularly exploited, for in a brief admission they say that at the end of four years "nothing had been received in trust to be invested at the risk of the depositor," and that "the Company is 19 not liable for any amount as receiver." ' Perhaps the greatest service of the company was the furnishing of capital for the business of the community. 8uch is indicated from certain articles appearing at that time, as well as indicating an element of suspicion attached to the undertaking. NILES REGISTER, which purported to tell "the past, the present, for the future," of the date of September 5> 1835, contains the following: "A •TRUST COMPANY,' we learn from the Louisville Journal, is established in Cincinnati. It is familiarly called the Farmer's bank. It lends money upon real estate at half its value, secured by mortgage; and the mortgage is so drawn as to make the mortgagee a mere tenant at sufference. The loan is not made upon time, but during the pleasure of the lender. By its charter, the corporation has many novel and exclusive privileges never before, as the Journal believes, conferred upon any moneyed institution. It possesses great advantages over ordinary creditors, brokers and money lenders in the collection of its debts, which are liable to great abuse. Tho established at Cincinnati, it is co-extensive in its transactions with the State. It IS. Perine, E.T., "The Story of Trust Companies," p.-59* 19* Ibid.10 has, or may have, a branch in each county. The Journal predicts much evil from the bank."20 . 21 The Company had power to issue notes until 1843, for "not more than twice the amount of deposits allowed to remain for not less than a year, and for not less than half the paid up capital invested in loans on real estate;" the charter was to be forfeited if it should suspend for more than thirty days. The company was one of the largest in the country, having a branch in New York City. It aroused a good deal of opposition among those who, even at that date, feared the growth of corporate monopoly. It was bitterly denounced as placing dangerous powers in the hands of a few. An editorial in NILES REGISTER is especially emphatic} "We noticed a sort of a bank, in our last issue, called the "Life Insurance and Trust company," at Cincinnati— "a New York concern" we believe, (for we see that it is regularly quoted among the sales at the "brokers board" in that city), the powers and principles of which are of the most dangerous nature and tendency, and fatal to the farmers and other productive classes, seduced into borrowings of money- which they might easily repay, when the Mississippi was bridged with gold, and every man had as much of the "constitutional currency" as he "could throw his hat at".........If we remember rightly, this is one of the many incorporations that have sprung up since it was resolved to put down the bank of United States ........."22 The following paragraph from an address in 1835 illustrates the popular feeling regarding "the new and dangerous monopoly," which 20. Niles Register, vol. 49, September 5» 1335, p. 3. 21. Eighteen hundred forty-three was the date when most of the bank charters in the state expired. Huntington, C. C., "A °f Bankin& an<* Currency in Ohio before the Civil War," pp. 22. Niles Register, vol. 49, September 12, 1835, P* 17»11 loaned money all over the state on real estate security: “The rate of interest at which they let out money, is nominally 7$, hut in fact (in most cases) the rate averages from 10 to 15i> . . . For instance, the borrower, before he can procure a cent of money is obliged to pay the agent of this bank for examining all the title papers of his land that is to be mortgaged, to pay for the execution and recording of a mortgage deed; to ’'lose time in effecting the loan, so that it will cost him from 10 to 15* the first year besides the interest; and immediately upon receiving the loan the borrower has to advance the first six month's interest, at the rate of 71° Per annum. At the end of every six months prompt payment is demanded, and if it should not be made at the day, yes, at the hour, it becomes due, the company can foreclose the mortgage, force the sale, and thus at one stroke sweep from a man his farm for the paltry sum of $100 or $200. "2if The wide distribution of the operations of this company is illustrated by the fact that in January, 1336, it had loans secured by real estate in at least 67 out of 33 counties in the State, the amount loaned in each county varying from a few hundred dollars to half a million. The total amounted to $1,S53>099 and was secured by pledges of real estate to the 25 estimated value of $4,338,117« For many years the company did a large business; it met with many losses; however, in spite of losses, the dividends averaged not quite six and one 26 quarter per cent per annum. Early in 1352 the trust department 23. Niles Register, vol. 49, October 10, 1335, p. 91» 24. Besides issuing its own notes, this company borrowed money all over the country at 3 to 4'pfer cent interest, and then upon this capital it discounted at 7 per cent payable in advance. Ohio Monitor (Columbus) May 13, 1346. Huntington, C.G., "A History of Banking and Currency in Ohio before the Civil War,wp.l4a 25. Op. cit., p. 143. 26. Ibid., p. 143.12 had assets of 02,750,000 and the hanking department had assets of over 01,3^5>000.^7 The company continued doing business but the last years of the life of the company were filled with grief; it fell into trouble over State taxes, which cost the company about pe* 0100,000 per year; the cashier of the New York branch was engaged in big speculative operations using the funds of the 29 bank »: however, the President of the bank lays the blame for the failure "to loans to parties unable to respond at this time." The crash came on August 21*-, 1857« The suspension and failure of this company brought other concerns down with it, and the Panic of 1&57 'was precipitated. It will be noted that all the companies doing trust business, and those that made any attempt at banking business— however large or small they may have been—had some connection with insurance business. Up to 1836 there had not been very 31 many of such companies chartered. New York City had but two Life Insurance and Trust Companies. (This does not have anything to do with the ordinary insurance companies; there were many of them, but they were not engaged in trust business nor in 27. Herrick, Clay, "Trust Companies," p. 6. 28. Ibid., p. 7. 29. Sumner, "History of American Currency," pp. 180-81; also, Knox, "History of Banking," p. 68^. 30. Bankers Magazine, vol. XII, September, 1857» P* 2^0. 31. A list of the chartered companies up to and including 1836 is as follows: 1818 - The Massachusetts Hospital Life Insurance Company of Boston. Trust powers were assumed by the directors in 1823 and sanctioned by the legislature the same year. This company is still a going concern, but13 any sort of banking enterprise). As ms pointed out, many petitions for charter were presented, but they were usually disposed of unfavorably in the «Committee on Banks and Insurance Companies" of the Legislature. Many of these petitions were revived and granted under the "Free Banking" Law of New York of 1333. The list herewith presented constitutes nearly all of the companies organized under the law having the word "trust" in their corporate name: In New York City: Date of Incorporation North American Trust and Banking Company 1336 United States Trust and Banking Company 1339 The Atlantic and Pacific Trust and Bank- ing Company City Trust and Banking Company 1339 1533 Outside New York City: Lockport Trust and Banking Company 1336 Erie CaraJTrust and Banking Company 1336 Howard Trust and Banking Company 1339 Farmers Bank and Trust Company 1339 Rochester Bank and Trust Company 1339 Trust and Banking Company of Buffalo 1639 It will be noted from the list of companies incorporated under the Free Banking law, that a radical change was beginning to does not enter into trust agreements now. It deals only in annuities. 1322 - The Farmers Fire Insurance and Loan Company of New York. 1324- - The Morris Canal and Banking Company of New Jersey* 1330 - The New York Life Insurance and Trust Company* 1333 - The Connecticut Life and Trust Company* 133^ - The Ohio Life Insurance and Trust Company* 153ty - The American Life Insurance and Trust Company of Baltimore, Maryland. 1335 - Georgia Insurance and Trust Company* 1335 - Southern Life Insurance and Trust Company of Florida. 1335 - The Alabama Life Insurance and Trust Company. 133b - The Pennsylvania Company for Insurance on Lives and Granting Annuities, Philadelphia. 1336 - The Girard Life Insurance and Trust Company oftake place. The business of insurance and annuity was gradually being dropped, and banking was being added. These institutions aforementioned were nothing other than state banks, and did not 32 do any trust business, even though the word "Trust" is a part 33 of their corporate title. The banks incorporated under the Free banking law were given a wide range of privileges; the law as passed allowed “any person, or association of persons to 3^- establish banks of discount, deposite, and circulation." The capital of banks created under this act was not to be less than $100,000, and the charters made the term of life of the corporation as much as 262 and 500 years; there was no limit to the amount of capital stock which might be raised, hence many of 35 the banks planned to become very ambitious concerns. Philadelphia. 1S36 - The Charleston Life Insurance and Trust Company of South Carolina. 1536 - The Savanah Insurance and Trust Company, Georgia. These companies were found in the laws for the given years. 32. Senate Document, 1257 > No. 163 (New York), "Report of Condition of Trust Companies incorporated under the laws of this State. This report shows only three companies in the State. They are: United States Trust Company of New York City New York Life Insurance and Trust Company Buffalo Trust Company (failed in 1557) 33. The name is, of course, misleading; it was, no doubt, retained as an advertising asset, due to the success of the specially chartered Trust Companies which were in operation. 3^. Statutes of New York, March IS, 1237. Also Senate Document, 1537, No. 55, vol. II. 35. A brief history of some of the banks aforementioned is as follows: The Erie Canal and Banking Company of Buffalo had a capital stock of $200,000. The Lockport Bank and Trust Company of Buffalo had a capital stock of $500,000. The United States Trust and Banking Company of New York City15 The establishment of the free banking system was sort of a reaction against the "Safety Fund" system then in practice. Public opinion was sufficiently strong as to induce the Governor of the State to recommend to the Legislature "to discontinue the present mode of granting charters, and to open the business of banking to full and free competition, under such restrictions and regulations as are necessary to ensure to the public at large 36 a sound currency." That the present system in operation was 37 regarded as a monopoly is seen from the following: "The monopoly character of the system, the exclusion of competition, the creation and maintenance by law of a privileged order, who have the sole power of selling or lending their promises to pay, in the shape of notes, and demanding interest thereon, whilst the rest of the community, on their promises to pay, are charged with interest, are features utterly at war with equal rights and free government." Hence the "Free Banking system" came into force which meant "that all are freely permitted to embark in it who comply with the rules 3S prescribed. It is no monopoly—no exclusive right granted by had a capital stock of $1,000,000. The North American Trust and Banking Company, also of New York City, had a capital stock of $2,000,000. The Lockport Company had plans to increase the capital stock to $2,000,000. The Buffalo Company planned an increase to $10,000,000. The two New York City concerns planned to issue stock up to $50,000,000 in each case. The first and third and fourth concerns ceased doing business within a year or so after their incorporation, as did the City Trust and Banking Company of New York, established in 1839. The Howard Trust and Banking Company of Troy lasted until IsMi-, and only the little Lockport concern lasted until 18^8, when it disappeared from the circle of free, too free, banking. 36. Seante Document, New York, 1838, No. 68. 37. Senate Document, New York, 1837, No. 55» 38. Other states followed the example set by New York; e.g., Ohio and Massachusetts passed similar laws in ISpl; Michigan, in 1837;16 the Legislature to a favored few, but it is open to all who can give the requisite security."39 This apparent freedom of action seems to have carried over into certain transactions engaged in by some of the "so-called" Trust Companies. The note issue privilege of the law allowed the issue of notes, but prohibited the "issuance of any notes, unless the same shall be payable on demand and without interest." One of the companies, the North American Trust and Banking Company, issued notes with a year to run; in addition "several other of the general law banks had been engaged in issuing such paper;"^ as a result, many of them failed and long drawn out and costly litigation followed. This was especially true in the case of the North American Trust and Banking Company which issued the so-called 4-1 "Million and First Half Million Trust Mortgages." These mortgages had been issued for the purpose of providing the Company with needed funds, and the question at issue was whether or not these »mortgages were valid debts, or whether they had been issued for the purpose of defrauding the public. In support of | the argument that the mortgages had been issued with the direct Pennsylvania, in I860; Tennessee, in 1851-2; Vermont, I85I; Virginia, IS5I; Indiana, in 1854. The Free Banking law of New York served as a model for the draft of the National Bank Act of 1863. 39. Report of State Comptroller, Millard Fillmore, 184-9, Assembly Document, 184-9, New York. 4-0. Bankers Magazine, vol. IV (184-9), p. 596. 4-1. This case is discussed, and the business operations of the company recounted in: Bankers Magazine, vol. IV (184-9), pp. 59&- 602; vol. VII (I857), pp. 340; vol. IX (November, 1854), pp. 34-9-S5M-; vol• XIII (18585, PP- 202-06.intention to defraud, long arguments followed in which the authority of a hank, which was spoken of as a moneyedcorporation with the name "Trust company" attached, and not acting in the capacity of a trust company, had any authority to issue hills or notes maturing at a future date. It was shown that almost the entire business of the company was the purchase and sale of securities, and the issuing of post notes or hills of exchange, payable on time. The legal battle over these questions was hitter and long drawn out. The decision finally reached was that no fraud had been intended and the mortgages (bonds) were valid instruments. However, the decision did not save the company from k-2 failure, and loss to many depositors, both here and abroad. The failure of such companies as the North American Trust and Bank ing Company (I852) and the Ohio Life Insurance and Trust Company (1857) represent the high spots in the banking activities of companies bearing the word "Trust" as a part of their titles, up until the Panic of 1857* There were many similar companies which engaged in some banking activities, but none so prominent as these two companies. It will be recalled that companies back in the 30*8 lf-3 began paying interest on deposits of funds left with them. k-2. The London Times (quoted in Bankers Magazine, vol. I, 18^7 > P* 52k-) says of the North American Trust and Banking Company and the Morris Canal and Banking Company, and the United States Banking Company: "These concerns were conducted on a large scale, and by Eersons who occupied a prominent position in American society . . osses to individuals in this country (England) amount to several millions sterling, and they have spread ruin far and wide." ^3. Supra, p. 6, The New York Life Insurance and Trust Company, 1830, was first.lg It is difficult to say just how many trust companies paid interest on funds deposited with them, up to a period around 155*1—5, hut very likely many of them did. Evidence that the Trust companies were gaining in popular favor is seen from an article appearing Mi- at that time. "The Trust companies of New York City are among the most useful and reliable institutions fostered by the community. They are the recipients and trustees of funds in large and small sums, held for the account of widows and orphans, minors and others; and are safe depositaries for those who wish to avoid the risk arising from investments in the public securities of the times. More or less risk is involved in the purchase or sale of State, city, county, railroad, and other bonds. Experience has shown that no class of public loans in this countrv (those of the general government excepted) is free from loss by depreciation, fraud, or finally repudiation. The events of the current year more especially show the uncertainty and fluctuations, and the depreciation and absolute losses, arising from investments in the ordinary shares of the stock-market. "The ordinary and extraordinary risks may be fully obviated by the deposit of funds in either^-? of the trust companies of this city. The law of the State has constituted them legal depositories for funds in deposite in the several courts." The paying of interest on deposits may have been another cause for the popularity of the trust company, even though no mention Ml-. Trust Companies of New York, Bankers Magazine, vol. IX, November, 1554, pp. 321-S25« M?. The infeiance one would get here is that there were but two. The same article further on lists the following companies with "funds actually held:" The New York Life Insurance and Trust Company The United States Trust Company of New York The Farmers Loan and Trust Company The Mutual Life Insurance Company of New York The New York Life Insurance Company The Mutual Benefit Life Insurance Company The Manhattan Life Insurance Company - 14-0,000 The United States Life Insurance Company - 150,000 $5,700,000 1,500,000 2,000,000 2,620,000 500,000 950,000 140 Jr'“'19 is made in the article to that particular feature. It is certain, however, that as early as 1857 the trust deposit business of the companies, developed partly into a "deposit subject to check" 46 business. A special report of Trust Companies of Hew York made on the first of January, 1857, shows the transactions for three companies as follows: Name of Company United States Trust Company of New York New York Life Insurance and Trust Company Buffalo Trust Company United States Trust Company of New York New York Life Insurance and Trust Company Buffalo Trust Company Deposits Re- Number Paid to De- Number ceived in of De- positors, of Drafts 4,669,913 1,808 4,020,161 1,963 5,907,713 5g7,.75.Q 11,105,302 2,665 5,773,607 3,547 457.040 8,0Ì0 ¿0,255,809 2,946 4,042 8,951 Aggregate of Deposits, January 1 ■ 1857 1,614,450 3,833,317 185.738 5,633,506 Hence, it appears that these companies cashed checks aggregating a sum nearly twice as large as the combined deposits shown as of «January 1, 1857* The small turnover would indicate that the accounts were rather inactive or else that only a small part of the accounts were active checking accounts. Even though small as it may seem, the beginning of the service is seen. These companies and their activities constitute, for the most part, the chief companies which are of interest and importance, so far as activities resembling banking activities are concerned. The period under consideration was one in which state banks were most active, and since trust companies were few in number, and the state banks of issue plentiful, there was little 46,* Senate Document, New York, 1857, No. 163.inducement for banking functions to be engaged in extensively on the part of trust companies. The Panic of 1S>57 enc^e<^ niany of the weaker trust companies which were really state banks, and at the same time ushered in a period of reorganization requiring ad- Jj-7 justments which were national in scope. As was indicated, the period preceeding the decade of the 50'8 saw very few trust companies established, and a treatment of them would be largely a treatment of a half dozen individual companies. However, the activities which were gradually developing at this time, and which continued for the next 25 or 30 years, served to develop and set forth the Trust Company as a distinct enterprise, which was to take an active part in the financial and developmental history of the country. ^7* Supra, p. 13CHAPTER II BANKING ACTIVITIES OF TRUST COMPANIES FROM 1850 TO 188022 CHAPTER II BARKING ACTIVITIES OF TRUST COMPANIES FROM I65O to 1630 The middle of the 19th century marks a logical turning point in the historical development of trust companies, for the reason that the general make-up of the companies was changing, and original plans and purposes were being dropped and new ones added. The company ceases to be a homogeneous type of enterprise as was the oase with the early companies which did "Insurance and Trust business" or "Banking and Trust business" only; the new companies coming into the field were "savings, loan and trust" oompanies, or "safe deposit, loan and trust" companies, or "fidelity and trust," or "title, guaranty and trust," or "mortgage guaranty and trust" companies, etc. It will be noted that the original combination of services was being dropped—such as "fire insurance and trust" or "life insurance and trust"—and new servioes were added as a result of the economic demands of the times. This time the mutual 1 alliance was with banking activities. It was noticed that the insurance and trust companies, from the earliest times, carried on a flirtation with the business of banking, and as soon as the dissolution of the insurance sund trust partnership took place, completely, in the period before the 60 *s, the trust companies went after the banking business with reckless abandon. Certain economic activities of the period have a bearing on the development of the trust company as a bank, which 1. Supra, pp. 6, 8, 14.23 may well be cited here to serve as a background for later activities. In the first place, it will be recalled that the service of the companies, up to the middle of the century, was more in the field of personal trust services, serving as executor, administrator, guardian, and managing estates, and insurance business. The financing of corporations began now on a much larger scale than ever before attempted; railroads were consolidating and new lines were being built, and the system of p issuing bonds under a corporate trust deed became the practice6, which opened a new field for trust companies. It was also in this period that the scandals and frauds took place, such as the famous "Schuyler frauds" on the Hew Haven Railroad, which called from the service of the trust company as registrar and transfer agent of stocks and bonds. Moreover, the banking and financial mechanism of the country began to assume national proportions; the Hew York Clearing House was established in 1853; the Boston Clearing House in 1856» the Philadelphia Clearing House in 1858; the Chicago Clearing House in I865. In 1863 the Rational Banking System and a national system of currency were established. The population had now (I65O) reached 23 millions and the territorial bounds of the United States had expanded to its present proportions. The opening up of the West by the railroads together with the increase in production and expansion of markets made for a greater need of an improved monetary system. The per capita wealth was estimated 2. Lanier, H.W., "A Century of Banking in Hew York," pp. 210-11. 3. For accounts of the "frauds" see Bankers Magazine, Vol. IX, I85h, pp. 81, 385, ^14.2i4- to have increased from #308, to $1,116 from 1850 to 1900, or from #7,136,000,000 to #88,517 ,000,000. The total amount of bonds issued by the national government before I85O was not more than #30,000,000. From I85I to 1870 the national government issued over #1 ,115,000,000 worth of bonds. The national public debt increased from #63,000,000 in 1850 to #2,755>76^,000 in 1866, and decreased to #1 ,263,^17,000 in 1900.^ The period was also marked by great developments in consolidations, combines, and trusts, in the field of manufacturing and trade as well.^ Hence, it was in such a period of extraordinary eoonomic activity that the institution known as the "modern Trust Company" developed and began playing an important part in the 6 financial affairs of the nation. As was seen0 in the decade of the 50's the trust companies were regarded "among the most useful and reliable institutions fostered by the community." They were serving not only as recipients and trustees of funds, but they were beginning to take on certain specialized functions which have been added to and augmented up until the present time.? One of the first of these special services which was taken up by the trust companies, and even before the banking feature was developed, was the service of safe deposit. One of the very earliest accounts of this service is to be found in the records of the Massachusetts Hospital Life Insurance Company of Boston (1818) when the "Secretary of the company was ordered to Statistics here presented come from "Statistical Abstract of the United States," 1925» 5. Jones, Elliott, "The Trust Problem in the United States." 6. Supra, 18. 7. There were many branches of specialized services which they<* buy a tin case to keep the title deeds in.* No statement can be found of anything resembling safe deposit business in the accounts of the early companies; however, it is probably fair to assume that some suoh service was done. The first company to be granted a charter to carry on strictly safe deposit functions was the New York Safe Deposit Company chartered in 1861.^ Other Safe Deposit companies were chartered, but they were not "Trust 10 Companies." However, with the Increase in stocks and bonds and especially with the Increase of Government securities during the Civil War, the demand for safe deposit service became a necessity.^1 * * * S. * * * 9 10 11 12 It is likely that the banks at that time did this sort of thing, but only as an accommodation to their customers, for which no charge was made. Later on, however, trust companies 12 also began to offer this service. In a few years the title began to do. Among the better known are the services of: Corporate agency, Corporate Trust services, Fidelity, Title Insurance, Personal Trust and Agency, Savings and Safe Deposit Agenoies and so on. None of these, except those most related to the subject of banking, will be taken up. The ones that will be taken up as specialized services will be Safe Deposit and Savings operations of the Trust Companies, and Personal Trust service only so much as is necessary in connection with Savings business. S. Bowditch, N.I., "A History of the Massachusetts Hospital Life Insurance Company," p. 27* The author states (1851) "that it (the tin case) is still extant and used for holding the title deeds." 9. LawBof New York, 1861, chapt. 255» also, Bankers Magazine, voi. XXI, October, 1866, p. 316. 10. Bankers Magazine, voi. XXI, 1866, p. 316, gives accounts of similar concerns in Philadelphia, Cincinnati. The same magazine in September, 1871» stated that there were many such companies in New York, Boston, Hartford, Philadelphia, and Chicago, p. 321. 11. Gest, Wm. P., "The Rise and Business of the Modern Trust Company," The Making of America, voi. Ill, pp. ^28-40. 12. Bankers Magazine, voi. XLI1, July, 1887, PP» 606-8.^1 «Safe Deposit" became a part of the titles of trust companies, and continues to be so to the present time. The following is a list of most of the older safe deposit and trust companies: T3 1864 - The Safe Deposit and Trust Company of Boston* 1866 - The Fidelity Insurance, Trust and Safe Deposit Company of Philadelphia111, 1R 1867 - The Boston Safe Deposit and Trust Company*5 , 1870 - The Safe Deposit euad Trust Company of Auburn, Hew Tort® 1871 - Troy Security and Trust Company of Troy1/ There is nothing in the laws which chartered these companies, which would indicate that they were doing anything of the nature of banking business, but on the other hand it appears that the safe deposit business was added as a necessary adjunct to the Trust business as such. It would appear, therefore, that the trust companies aided very materially in developing this branch of service which now is a necessary part of any commercial bank. Another feature which began to be very noticeable in the activities of the trust companies after the decade of the 50*8 was of a nature of savings bank accounts or savings banking. As was 18 indicated the second oldest trust company, the Hew York Life 13. Laws of Maryland, 1864, chapt. 242. 14. Laws of Pennsylvania, 1866, Act 257» 15. Laws of Massachusetts, 1867, chapt. 151. 16. Laws of Hew York, 1870, chapt. 699. 17. Ibid., chapt. 196. 18. Supra, chapt. 1, p. 6.Insurance and Trust Company, began paying interest on funds deposited with them. Other companies which followed did likewise* It appears that the funds, which were in most oases the so-called "trust funds" were not clearly differentiated from general deposits. There is no way of telling from the laws which created the companies, in what manner the trust funds were to be handled. Probably the company paid the beneficiary the contractual rate of interest, and kept the difference between that rate and the rate the company was able to obtain, as its share or profit for handling the accounts. Then, too, one would infer from the Report on Trust Companies in Hew York,made by the "Committee on Banks" in 1857» that the deposits were no different from general time deposits, or even demand deposits. The report shows^ that 8,95! "drafts" were oa«hed by the three companies reporting, which amounted to |10,255»809* Regardless of whether or not we olass these deposits as "trust," "time," or "demand" deposits, the fact remains that they accepted deposits upon which they paid varying rates of interest. In this respect they acted as savings banks. That no differentiation is made between time or general deposits and "deposits in trust" is indicated by a report of the Bank Superintendent of Hew York in the subjoined statistics.^ 19. Supra, ohapt. I, p. 19. 20. Commercial and Financial Chronicle, June, 1875» wol. XX, pp»Founäed Name of Company Capital Stock Paid Uu Deposits on Interest Rate of Interest 1366 Brooklyn Trust Company * 334,040 $ 1,130,670 4 1322 Farmers Loan and Trust 1,000,000 4,106,000 3-5 Company 1363 New York Mercantile Trust Company 932,000 635,000 it*7 1367 National Trust Company 1,000,000 3,013,000 1364 New York Guaranty and Indemnity Company 2,000,000 1,146,000 2-5 1330 New York Life Insurance and Trust Company 1,000,000 7,373,000 3-5 1370 New York State Loan and Trust Company 1.000.000 571,000 4 1371 New York Real Estate and Trust Company 500,000 251,000 4 1364 New York Union Trust Company 1,000,000 4,539,000 3-5 1366 Trust Company of Onon- daga (Syracuse) 100,000 444,464 6 1353 United States Trust Company 2,000,000 13,645,020 2-5 1370 New York Loan and Indemnity Company 336,000 301,594 4-5 Name of Company Brooklyn Trust Company Farmers Loan and Trust Company New York Mercantile Trust Company National Trust Company New York Guaranty and Indemnity Company New York Life Insurance and Trust Company New York State Loan and Trust Company New York Real Estate and Trust Company New York Union Twust Company Trust Company of Onondaga (Syracuse) United States Trust Company New York Loan and indemnity Company Number Cask in Per Oenfc ; of Be- Bank Cash to pûflitûiÆ_______________Deposits 642 563 12 2,221 * 56,531 1,693,000 15,393 479,000 4.3 41.2 2.5 I5.9 1^7 37,130 3.2 1,613 136,225 1.3 191 336,300 5.9 1,^7 1,039 1,242 46 123,000 226,637 356,655 753,590 232,772 49.O 5-9 3.0 5.5 77.2 This table gives a fair picture of the trust companies up to 1370 with regard to certain features which will be taken up29 in detail later. A wide diversity is seen in the items. The deposits on interest vary from $300,000 to over $13,000,000; the rate of interest on deposits varies from 2 to 7 per cent; the number of depositors varies from 12 to over 2300. The item which 21 caused the great trouble within a few years is the cash in bank. Here it is noted that the cash is unusually small, varying from $15,000 to $170,000, or from slightly over 1 per cent to over 77 per cent but most generally around 5 per cent. As we shall see later, herein lay the chief point at issue between banks and trust companies, which was not settled for many years. The trust companies were not slow in seizing onto the ■savings bank" business along with the trust business; with many, the savings business was no doubt a side line of aotivity as was the case with certain trust companies whioh put in some safe deposit service. However, there were companies chartered which had the word "Savings Bank" as a part of their corporate title along with Trust Company, as was the case with Safe Deposit and pp Trust Companies. Sc»e of the early companies which added the word "Savings bank" to their name are as follows: 1652 - State Trust and Savings Bank of Buffalo (Hew York) 1666 - Citizen« 8avings and Trust Company (Cleveland, Ohio) 1671 - Montpelier Savings Bank and Trust Company (Vermont) 1672 - Union Savings Bank (Georgetown, South Carolina) 1673 - Illinois Trust and Savings Bank (Chicago, Illinois) It will be noted from the list of early companies chartered that 21. The percentage of cash to deposit as is shown in the table was not a part of the original report. The percentages were added by the author. 22. Supra, p. 26.30 Hew York has only one, and that the others are scattered about in various states. It is also noted that the greatest number appear in the 70*8 and not in the early period around the 50*e* The reason for this speaks well for the powers in charge of the granting of charters to financial institutions. It marks what might be called the beginning of a differentiation between savings bank and trust company functions. The tendency was noted for trust company business to be added to life insurance and fire insurance business; likewise, for safe deposit to be added to trust service; since trust companies were accepting deposits on which they were paying interest, the natural move, and quite in line with the prevailing tendency, was to make savings deposit business a part of trust business. The first case to be found of a company asking for corporate powers to include both trust and savings was the 8tate Trust and Savings Bank of Buffalo, Hew York. The report of the Committee on Banks and Insurance Companies^ to the Senate is monumental in that it points out two things of significance: viz., First, that there is a distinction between trust companies and savings banks. Secondly, that this distinction was not recognized heretofore. It is pointed out by the Committee, that the purpose of the petition was to "blend together two branches of business, that have hitherto been regarded as entirely dissimilar in character and uniformly conducted separately and apart, the one 23. Senate Document, Hew York, 18>52, Ho. 40.31 from the other." That the Committee recognizes clearly the difference between trust and savings functions is seen from the following: "The applicants for the passage of this bill, propose to unite, virtually, a savings bank whioh can have no capital stock, nor any assets whatever, except the money deposited therein by mechanics, laborers, servants, minors, and a class of poor people, who are supposed, from their education and position, to be incapable of well conducting their own affairs; and who, of course, oan have no voice in the direction of such bank, with a trust company, having a capital stock of $100,000 which shall be conducted entirely by a board of trustees, who, together with those they may represent, shall be the sole owners of the bank." Farther on in this report the Committee points out that savings banks have a definite purpose in conserving the funds "for that large class of a community, the laboring poor." In this respect "savings institutions judiciously conducted are among the noblest and most meritorious public charities that can well be devised, . . . . and should be watched by the legislature with sleepless vigilance." They call attention to the practice of banks formed under a general law for conducting the business of banking, which simultaneously organizes a savings bank under a special charter.^ The practices which follow lead to dangerous business. The business of both concerns is done over the same counter; the funds are not kept separate but are used indiscriminately in general banking business, "subject to all the hazards of the ordinary business of banking." 2k. Senate Document, op. cit., p. 2. 25* See footnote 2, p. 2, for provisions under which special charters were granted.32 The same argument applies, to some extent, to the otherwise formation of trust companies/than by special enactments. It is recognized that "savings banks and trust companies, although entirely unlike in the character of their operations, may be considered as kindred institutions.^ The principles that are to be observed in successfully managing the one should apply to the other." The difference the committee recognizes is that "the savings bank may be regarded as the humble and Safe pocket of the poor, the sacred receptacle of the aggregate mites of the masses; the trust company assumes to be the strong box of voluptuous wealth, which, by various means, is poured into it and there safely lodged for the benefit of a totally different class 27 of the community." This differentiation later proved to be the basis for special legislation affecting these various types of institutions. Despite the fact that the committee reported unfavorably on the grant of powers to the State Trust and Savings Bank of Buffalo to incorporate a trust company and savings bank combined, the company was incorporated and others followed. Even though the truBt companies began adding "Savings Bank" to their title, it did not make any material change in the services already performed by the trust companies. The so-called "trust deposit" mentioned earlier in this discussion was really a savings deposit, and all the trust companies were really "savings bank 26. Senate Document, New York, op. cit., p. 6. 27* Ibid.,p. 7.33 and trust companies."26 After the Civil War very remarkable changes come in whioh affect the banking development of trust companies. The national Banking System^ was introduced largely as a measure of economic necessity. Before the National Banking System was instituted, state banks were the chief banking concerns. There were in the United States in 1860 some 1,562 state banks which were banks of discount, issue and deposit. Owing to the repressive influence of the national banks, hastened in its effect by the 10 per cent tax on State bank notes, the number of state banks had, by 1868, fallen to 2*1-7. One result of this decline in the number and importance of state banks was the 28. An account of the companies doing business at this period would be incomplete without reference to the famous "FRS1DMAS1S SAVINGS AND TRUST COMPANY, although this was a savings bank rather than a trust company. This institution was founded through the efforts of Charles Sumner and others, in 1865» & measure of philanthropy to aid the negroes in accumulating property for support of their newly acquired freedom. For some years its business prospered greatly, and thirty branch® were established in the Southern States. In 1870 its charter was amended so as to loosen the restrictions on its investments; and this action, together with the Panic of 1873, proved disastrous. The company became insolvent in July, 187^, and its failure was the source of great distress among the poor negroes who had trusted that institution fathered by the Government. The depositors numbered 72,000, scattered over 13 states. The liabilities at the time of failure were $3,037,560? “the amount paid the creditors was 62 per cent of their claims. Bankers Magazine, vol. XXIX, 1875, p. 936; vol. XLJJ, 187H-, p. 909. Practically every issue of the Bankers Magazine at this time had something pertaining to this institution. Keyes, E.W., "History of the Savings Banks of the United States," vol. II, pp. 55$ et seq. 29» The National Banking System, like both the First and Second United States Banks was created under the "implied powers" as set forth by the Supreme Court decision in Me Cullough vs. Maryland, k, Wheaton. 30. National monetary Commission Report, Document 659, pp* H, 13. The Merchants and Bankers Almanac of 1868 reveals the names and some particulars of about 3,65® national banks, 270 state banks, cessation of state banking legislation. The old laws regulating state banks of issue were swept away by code revisions, or remained obsolete and unchanged on the statute books. Hence the number and importance of state banks becomes secondary compared with the national banking system.^ The National bank law was extremely rigid and conservative in many respects, which seems ( to limit somewhat, the progress of the system. The period of reorganization and expansion following the Civil War did not call for rigidity, but for conservative yet adequate banking services. Thus, the acts creating the national banks as well as their history pulsate with the idea that their cardinal purpose was to provide an adequate currenoy^ and thereby help public credit and incidentally to facilitate the exchange of commodities. The operations of the national banks were jealously watched at the start, and strictly confined to their charter powers. It is and 1,^00 private and savings banks. There was also listed some 600 fire, marine and life insurance companies. The only reference to any trust company was a one page advertisement of the National Trust Company which failed in a few years. Of the 1,650 national banks at this date, 922 were converted jstata Institutlobs.‘ 31. State banks were chartered in the yews following the passing of the National Bank act, but the number became gradually smaller. The lack in uniformity in State banking laws begins to be noted in this period. For instance, in Illinois the Legislature incorporated many banks between 1S55 and 1&71; many had the word "trust" in their titles. Although they had power to exeoute trusts, banking was the main feature of their charter. Stephenson, E.J., "Early History and Growth of Trust Companies," Trust Companies, August, 1904, vol. I, pp. 620-25» also National Monetary Commission Report, op. cit., p. 13. 32. It was never claimed for either of the United States Banks that they were other than banks of issue, deposit and discount. 33. Jones, B., "The Trust Company—a Necessity," Commercial and ]j^na|£ial Chronicle, 190S, Bank and Trust Company Supplement, pp.largely as a result of this rigidity or omission of powers that the trust companies found a real opportunity for the beginning of banking activities, on a scale larger than ever before attempted. It will be well to examine certain of the limitations of the National Bank act which gave trust companies a decided advantage in developing their banking activities. In the first place, one of the chief reasons for establishing the system was to provide a market for United States bonds. (Section 5167 the Hational Bank Act)°^ The national 35 banks had not the general right to deal in bonds other than 36 Government, nor to act as broker in such dealings. Furthermore, they could not own or deal in stocks. The dealing in stocks was not expressily prohibited, but suoh prohibition is implied from the failure to grant the power.^ Any purchase of stock was regarded as ultra vires and the same was used as defense in case of 3g suit for liability. It was not until 1876 that it was possible for a national bank to take a note secured by real estate and foreclose the mortgage upon default of the note. The Supreme court 34-. The National Bank Act, "An act entitled to provide a national currency secured by a pledge of United States Bonds, and to provide for the circulation and redemption thereof.* approved Jniie 3, 186*1-. 35. Logan County National Bank vs. Townsend, 139, United States 67, 1891. 36. Weckler vs. First National Bank of Hagerstown, Maryland, *1-2, 581. First National Bank of Allentown vs. Hoch 89, Pennsylvania, St., 32*1-. Town Council of Lexington vs. Union National Bank 22, S.R., 291, 75, Mississippi I. 37. First National Bank of Charlotte vs. National. Exchange Bank of Baltimore, 92, United States, 122. 38. Chemical National Bank of New York vs. Havermale, 52 Pa©. Rep. 1071, 120, Cal 601.____________________________________________________*i held that as between parties the contract should hold good, even though the bank acted ultra vires in making the loan.^ Besides these there were other limitations to be found in the law which worked to the disadvantage of the national banks and to the advantage of trust companies. One such was a result of a decision relative to doing safe deposit business. The court said, ho in speaking of the implied powers of a bank: ■It does not necessarily include the business of a safe-deposit or business of safe-keeping and storage for hire or without compensation jewelry and valuables or property of any kind." Modification of this seems to have been made by the Comptroller hi of the Currency who ruled that: "While there is no provision of the statute authorizing Rational banks to invest considerable sums in the building of s*fe deposit vaults for the purpose of making that a prominent feature of their business, yet the investment of a moderate amount for such purposes in cities where companies cannot be properly organized for the sole purpose of conducting this line of business, is not open to orlticism. The Comptroller holds that the matter is one largely in the discretion of the directors of the bank." Hence the safe deposit field as such was a forbidden one during the early period of the national banks. Another limitation placed on national banks was that they were prohibited from 39.Matthews vs. Skinker, 98 > United States 621. Rational Bank vs. Whitney, 103*United States 99* Frontier vs. Rew Orleans Rational Bank, 112, United States h39. hO. First National Bank of Lyons vs. Ocean Rational Bank, 60 Rew York, 27S. hi. Pratts Digest of the Rational Banking Law, pp 11, 12.37 AO purchasing commercial paper. They were authorized to make only commercial loans and thus practically, though not legally, to 4*2 receive only commercial deposits. Besides, the national hanks could not act as guarantor for a debt by a third party, nor become surety on a bond. The national bank might endorse or guarantee the commercial paper which it held on rediscounts, for such power 44 seemed to be incident to the express power conferred on banks by the act, to discount and negotiate promissory notes, drafts, bills 45 of exchange and other evidences of debt. Anything other than this would be ultra vires. Thus, after the Oivil War came the enormous multiplication of Government securities, and the fast increase of railroad and other corporation bonds shortly thereafter; this, coupled with the lawlessness following the war, made a demand for safe deposit companies. Corporate trustees were required for corporate mortgages; there was a demand for other services of a fiduciary, such as corporate agency to transfer and register 42. Lazear vs. national Union Bank of Baltimore, 53 Hd., 78. Farmers & Merchants Bank vb. Baldwin, 23 Minn., 198. First National Bank of Rochester vs. Pierson, 24 Minn., 140. 43. Prusaing, "National Banks and the Trust Qompamy problem," Bankers Magazine, October, 1904, vol. LXIX, p. 523. 44. The incidental powers are "such as shall be necessary to carry on the business of banking: by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by loaning money on personal security; by issuing notes, according to the provisions of that Act." National Bank Act, Sect. 5135, Art. 15, Sect. 7th of the Article. vs. Firie et al 45. Commercial National Bank et al^2 Fed. Rep. 799, Peoples Bank vs. National Bank, 101 U.S.181, 183.»1 securities; new issue of securities had to be underwritten, and various kinds of syndicates had to be formed. The whole mechanism of finance became so complex, intricate, and diverse that the ordinary agencies of finance, such as the State and private banks, were taxed to the breaking point to meet the demand. This was followed by unwarranted practices on the part of the banks, mainly in the form of exercise of many unauthorized powers. National banks acted as safe depositaries. Poor's Manual shows them as having acted as transfer agencies and registrar of stock. There are instances where national banks have become subscribers to syndicate purchases and underwritings of stock and bonds of other corporations, and so on. All these activities were beyond their charter powers and if a loss should be incurred, the bank would successfully plead ultra vires in defense. The limitations of national banks being thus defined, it was evident that they could respond only partially to the 46. Poor*8 Manual. Cases have been found in every issue of the Manual after 1875 of national bankB acting as registrar and * transfer agents for railroad stocks and securities. Hunt's Merchants Magazine for 1871 shows that national banks acted as transfer and registrar for bonds of Missouri (p* 191), Kansas (p.. 180), Michigan (p. 187), and other states. It seems hardly possible that national banks could keep entirely free from taking part in many of the above mentioned activities. The questibn of State debt8 occupied the center of attention, along with the great internal expansion said development. Both of these} required services of sound financial institutions. Since national banks were of greatest importance, it seems entirely possible that they would partake in the financial activities of the time, even though not specifically authorized to do so.39 broader neede of the country. The trust companies being state institutions, with broad charter powers, knew no such limitations. Hence it was in this period that the trust companies began to assume a modern form. The national banks were restricted in their powers and the state banks were of less importance since they had 47 lost their profitable note-issue privilege. The trust companies, 48 although relatively few in number, were becoming more and more important. The banking functions of trust companies up until 1873 were practically undeveloped, although some of the oldest companies engaged in some very limited form of banking from the beginning. It was noted on page 19 that as early as 1857 deposits of trust companies were made subject to check. It was also seen that they did some safe deposit and savings business. These services were not made the chief concern of the companies, but were allied types of business to the trust business. The relative unimportance of banking activities of the trust companies up until 1873 is indicated by the fact that the leading financial journals of the time made little mention of them. 47. Many of the State banks became national. See footnote, p. 34. 48. Between 1864 and 1876 approximately 50 companies were incorporated yet probably not more than one-half ever did any business. These, together with the number organized before the Civil liar, make a total of around 36 companies actually doing business. Purifoy, F.M., "Growth and Development of the Scope and Power of Trust Companies from a legal viewpoint," Trust Companies, vol. I, July, 1904, pp. 601-4. Of this number, which is an approximation because no definite information is available, it is most likely the case that all of them save about half a dozen did banking business of some sort.40 The year 1873 marks a beginning of what may be called the "modern trust company movement." After this date the development is not an account of a few companies located in the larger cities, but of a type of institution which has expanded its functions and spread throughout the country. The trust companies by this time had almost completely divorced themselves from life and fire insurance and annuity business, and were going in for business which included the general banking field. The Panic of 1873 caught trust companies as well as banks; not only 49 were some of the trust companies forced to suspend along with the banks, but they were contributors, to a certain extent, to the cause which brought on the Panic. Loose methods of banking, of which the trust companies as well as the banks were charged, and a craze of speculation and money getting, were largely responsible for the Panic. This depression seems to have had very beneficial effects on the trust companies as a whole, which incidentally aided in developing their banking functions. It caused the suspension and elimination of many concerns bearing the name of "trust company" which were nothing but state banks, and concerns which might be characterized as "marginal" trust companies; it called to public attention the need for public regulation and supervision, and marks what is commonly called the 49. Among the larger and more influential of the trust companies which failed in New York were the Brooklyn Trust Company, the Union Trust Company, the National Trust Company, and the Warehouse Security Corporation. Commercial and Financial Ghronicie, July 26, August 30, 1873, vol. XVII; Report of the Comptroller, 1873, p. 90.41 beginning of the "trust company problem." The "trust company problem," which means the competition between national banks and trust companies over reserves, deposits, type of business, regulation and supervision, etc., had been going on for some time. In fact it had received more or less attention ever since the trust companies got into the banking field, but it was not until about 1873 that it was brought forcibly to public attention. This agitation or complaining had been going on with some little intensity in several states. The first state to take any action in the matter was Connecticut. The Bank Commissioners of Connecticut in their annual report for 187S recommended that instead of the trust companies making their annual returns to the Commissioners then required, there be quarterly reports, and the same be published in the newspapers.®® Such a law was passed the same year and applied to the five trust companies doing 51 business in that 8tate. In New Tork, where trust companies were most numerous, the agitation was more pronounced. The failure of such concerns as the Brooklyn Trust Company, the Union Trust 52 Company, and the National Trust Company brought out the irregularities of financial institutions over which the State had 53 no supervision. The Superintendent of the Banking Department of the State of New York in his report for December, 1873, points 50. Bankers Magazine, 1878,.vol. XXVII, p. 256. Also Herrick, C., "Trust Companies? p. 14. 51. Ibid., 1873, vol. XXVIII, p. 184. 52. The Brooklyn Trust Conqpany was a concern of two million re- sources, and the Union Trust Company of nearly eleven million resources, and the National Trust Company of over six million resources. Report of Superintendent of Banking, of New York State, 1874. * voi an<* Financial Chronicle, July 26, August 30, 1873,42 54 out the need for supervision as follows: "Some legislation seems to be required for the supervision of the other kinds of moneyed corporations in the 8tate than banks and savings banks. A new class of institutions is rapidly multiplying in the State; at least charters are obtained for them. They are styled variously Trust or Loan, or Indemnity, or Security, or Guarantee, or Exchange, or Safe Deposit companies. Some of the earlier trust companies were placed under the supervision of the Comptroller of the State, which was prior to the organization of the Banking Department; some were required to report to the Judge of the Supreme Court; some were required to deposit securities with the Superintendent of the Banking Department; others were exempt from this requirement. The majority, indeed all of them, are exempt from making stated reports to any supervisory department of the State administration, as the banks and savings banks do, and they are not liable to an examination by an authorized officer of the State. There is no obvious reason why such institutions should be privileged by exemption from the safeguards which the State has set about for the other financial corporations, for this class of companies combine, to a great degree, the powers and functions of banks of deposit and discount, and of savings banks, although they do not in all cases discount paper like other banks. I deem it proper to cause the same general regulations to be applied to this class of companies in respect to the supervision of them, and the making of stated reports of their affairs and condition, which have been wisely Imposed on banks and savings banks. Recent occurrences in the management of the affairs of some of these companies will emphasize my recommentation that you pass a general law concerning such institutions which will put them upon an equal footing with the banks and savings banks, in respect to supervision by the Bank Department, the making of stated reports and the liability to examination by the agent of the State. Such an act will be in such entire harmony with the long settled policy of the State in dealing with moneyed corporations which it creates, that the measure will no doubt receive immediate and general approval." 54. Annual Report of the Superintendent of the Banking Department of Mew York, December 30, 1873.43 The recommendation of the Superintendent was adopted by the Legislature5® and the first report was made June 30, 1874. This was the first time that trust companies made any sort of scientific report to any one. The report was made "by twelve moneyed corporations, variously styled trust, or loan, or indemnity, or guaranty, or mortgage companies, which shows that the companies had an aggregate capital of $11,752,040. Their deposits amounted to $38,479,791, a sum which was nearly three-fifths as 58 much as the entire deposits held by the state banks. The Report of the Bank Superintendent for 1875 shows an increase in deposits to $50,365,569 in eleven of the same companies that reported the previous year. Taking the country as a whole, the deposits of Trust oompanies weze $85,025,371; of State banks, $165,871,439; and 57 Rational banks, $686,478,630. This seems relatively small and unimportant when compared to deposits in Rational banks, but of considerable importance considering that nearly three-fourths of the deposits were in Hew York City.5® Not only were trust companies attracting attention in the States, but their increasing importance is commented on by the Comptroller of the Treasury. In his annual report for 1873-4 (John J. Knox) says: 55. Laws of Hew York, 1874, chapt. 324. 56. Annual Report of Superintendent of the Banking Department, December 30, 1374, p. 10. The report also mentions that it was discovered that during the past few years many trust companies were incorporated but made no organization while others,that did organize, languished and failed in the end. The deposits were known as "general deposits" which included deposits in trust and general deposits. 57. Statistical Abstract of the United States, 1921, p. 832. 58. Of this $85,025,371 deposited in loan and trust companies, it is probable that at least one-half was time deposits or trust funds.44 "Trust and loan companies are usually organized, by special State statutes, in the large oities. Their capitals, deposits, and business are quite large in amount. Reports are not required and inadequate when given. For instance, one of the largest of these institutions has published but one report in the year, and that report contains only a statement of assets, without any mention of the amount due to its depositors, or of any of its liabilities."59 This was the time when an attempt was being made by the Comptroller to get accurage statistics on the financial institutions of the country. Little information of value was obtained for he had no authority to compel trust companies to make any report to that office. He says in the report that he had received some returns from trust companies but not enough to publish without making his report "delusive.* However, the following year many more companies reported to the Comptroller and from then on we find trust companies reporting along with other financial institutions. One of the things emphasized by the Comptroller was that supervision was badly needed and had long been needed. This is brought out by an article appearing in a leading financial journal of the time as follows: "The Comptroller alludes to the trust and loan companies which have grown up in the late years and now assume a large space in Hew York City and in various cities in Hew England. Properly managed, these institutions are not only useful but necessary. They are intended as repositories for trust funds, for accumulation of deposits to loaned on mortgage, and for investment in Government 59. Report of Comptroller, 1873-4, p. 43. 60. Bankers Magazine, March, 1875, vol. XXIX, pp. 676-8.45 loans, in other words as Savings Banks on a large soale. Recently they have been converted into stock-jobbing concerns, apparently for the benefit of stock-operators and in large sums; thereby defeating their original objects atnd contributing to the demoralization of stock speculators. Call loans are among the active causes of a panic, and bankers handle them at great risk." The first report of the Comptroller setting forth the condition 61 of the "loan and trust" companies reporting to him, furnishes some interesting information. It is as follows: TABLE OF AGGREGATE RESOURCES AND LIABILITIES OF TRUST AND LOAN COMPANIES Resources: 1874-1875 35 "bankB" Loans and discounts ................ Overdrafts ... ..................... United States Bonds ................ Other stocks, bonds, etc. ...... Due from Banks....................... Real estate ........................ Other investments . ................ Expenses . . ....................... Cash items ............. ...... CashT-legal-tenders, bank-notes, etc. . $65,900,174 ► 16,833 , 2,086,842 , 37,323,062 , 1,837,605 . 3,733,357 . 2,880,342 . 92,894 . 5,186,004 > „.3>833,013 $122,890,175 Liabilities: Capital stock ............................... . $21,854,020 Surplus fund ..... .................. ..... 6,967,693 Undivided profits ................................. 582,867 Dividends unpaid ................................... 18,921 Deposits ....................................... 85,025,371 Due to banks .................................... 121,441 Other liabilities.............................. 8.319.862 $122,890,175 61. The Comptroller had no power to force reports from trust companies at this time. The companies whose reports are embodied in this submitted their dtatements as requested. It is likely that the actual number of trust companies was nearer 50 than 35.46 The same report shows a distribution of the "banks" by States as follows: Massachusetts............5 "banks" . . . . • $ 9,033,335 Rhode Island.............1 " 6,694,863 Connecticut ......10 " 5,711,438 New York .......12 " ..... 69,654,948 Pennsylvania.............7 " ........ 31.795.593 Total ................. ♦133,890,175 The Comptroller discussed the figures presented,®** with great care and explains that: "among the States from which either no reports were received or such as could not be utilized, are the great States of Illinois, Ohio, Virginia, Louisiana, Missouri, and many others." A footnote is added which states that: "The financial editor of the Chicago Tribune states that the liabilities of five trust companies in the City of Chicago on June 30, 1875, were: Capital, #3,500,000; surplus, |725,000; deposits, $5,688,574. But this statement, being unaccompanied by the resources of these banks could not be made available for the purpose of this report." This report of the Comptroller emphasizing the need of supervision and inconsistences in reports, together with the passing of supervisory measures in New York, and Connecticut, called forth the movement in other states. Ohio passed a trust company law in 1877, but annual examinations were not required until 1908. Vermont required reports in 1878, and Louisiana and Maine in 1883 and 1883 respectively. Illinois followed in 63. The report of the thirty-five trust companies must not have made a very big story, compared with the showing of the other institutions, of which there were: 2,086 National banks with resources of . . |l,823,000,000 674 Savings banks * " " . . 896,000,000 551 State banks " " * . . 272,000,00047 1887. Some Massachusetts companies, under terms of their charter, reported to the hank commissioners as early as 1870, although the legislature did not require this until 1888. Pennsylvania was as late as 1891 passing regulative laws. Much confusion seems to have existed in Pennsylvania, for in 1852 and 1853 only one of the two companies in the State reported to the legislature; in 1878, six reported to the State Auditor General, three to the Superintendent of Insurance, and one reported independently of any State department. California, West Virginia, and Colorado passed legislation requiring reports in 1891 and the other 8tatee did likewise in later years. At about this time (1875-76) trust companies were beginning to attract considerable attention from the general public. The bankers were feeling an uneasiness, which perhaps was not caused by actual competition any different from what had been going on for some years, but from the fact that reports were now being made and the actual competitive power of trust companies realized. The uneasiness might have been much greater had not 64 there been relatively few companies organized from 1876 to 1879. However, in 1880 trust companies began to be organized and have grown steadily ever since. The financial journals of the time gave considerable attention to their growth. One report says:®5 "recent events have led to some solicitude in regard to trust companies in this State (New York), and the reports of these 63. Perine, E.T., "The Story of Trust Companies," pp. 154-5. 64. None were organized in 1877 and 1878. Purifoy, F.M., Trust Companies, July, 1904, vol. I, pp. 601-4. 65. Bankers Magazine, April, 1876, vol. XXX, p. 777.48 institutions have been scrutinized with unusual interest." Another article, which is much more descriptive of the 66 actual conditions, speaks of trust companies as follows: "An important feature in our financial situation is the rapid extent during late years of the business of trust companies of this State. Hot very long ago their position was what their name implies, that is, institutions for safely keeping and managing trust funds. More recently they have been running into a general banking busiaess and now hold a position not very unlike the joint-stock banks of London, which take deposits on interest, loan them out as best they can, while leaving to the Bank of England the burden of carrying the reserve. In a similar manner the trust companies are dependent on the reserve of the associated banks, while becoming active competitors for general deposits, are very large lenders of funds on collateral securities and the leading buyers of paper in the market..........If the future growth of these trust companies is to be measured by the past growth, it will not be long before they will carry deposits one-half or two-thirds as large as the banks." Hence, it is in this period of 10 years following 1873 that the banking activities of trust companies begin to stand out. They did all the things that the national banks were prohibited from doing, besides many of the banking functions which were permitted to national banks. Many of the state banks were 67 eg abandoned or else made into savings banks, because the 66. Commercial and Financial Chronicle, vol. XXXVI, pp. 65-67. 67. The report of the Comptroller shows the number of 8tate banks as follows: 1877 - 593 1879 - 616 1881 - 652 1883 - 754 1878 - 475 1880 - 620 1882 - 672 68. This was especially true in Illinois where they continued mainly as Savings banks. Bankers Magazine, October, 1904, vol. LXIXT pp. 523-8.49 profitable feature of note issue had been taxed out of existence. The trust companies were really banking institutions. The name "trust company" did not truly describe the chief part of their business; they received deposits which were mixed with their own funds, for which they became bankers, not trustees. The deposits of the companies grew rapidly under the stimulus of interest payment. The deposits returned an interest to the depositor varying from 2 to 7 per cent, usually about 4 per cent. The deposits were generally taken on certificates of deposit which were payable on short notice. 8uch practice of using certificates of deposit was certainly not unknown to national banks, but was not encouraged by them for it involved the paying of interest; this practice of paying interest to ordinary customers was 69 considered as bad banking. Since trust companies did not have to extend a line of credit to their customers, they could pay interest, and solicit deposit business. The effect that this practice had on increasing deposits can be clearly seen from a comparison of the statements of the New York City trust companies, within the period under consideration. The statements are taken from the report of the Superintendent of Banking (A.G. Hepburn) and include the first report, 1874, and the reports for 1881, and 1882: 69. It is still regarded as bad banking, but competition forces bankers to pay it on accounts of certain sizes.50 Resources Bonds and Mortgages • • Stock investments • • • Loaned on collaterals Loaned on personal securities including bills purchased • • . Real estate • • • • Cash in other banks and other moneyed institutions . . . . Cash on hand . . . . . Suspended loans of real estate .............. Other assets .......... Total resources Liabilities Capital stock paid in, in cash ............. Surplus fund . . . . • Undivided profits . . . Deposits in trust . . . General deposits . . . Debentures ............ Bond8 outstanding . « . Other liabilities . . * Excess of assets over liabilities * * * • • Total LLabjlities June 30, 1874 July 1, 1881 July 1, 1883 11 companies 14 companies 14 companies $ 4,982,341 $ 10,768,288 $ 9,987,592 16,215,848 17,183,935 17,067,174 19,096,541 72,700,605 76,719,216 9,729,382 11,607,738 20,847,098 1,255,417 5,110,198 5,299,035 4,264,143 6,342,434 6,245,389 164,718 50,590 68,766 859,923 857,855 2,007.719 1.265.144 2.666.405 $57,716,109 $125,888,913 $139,758,534 $11,752,040 $ 11,500,000 $ 13,579,500 4,797,196 4,603,932 5,494,700 2,357,559 3,888,783 32,349,357 61,321,484 73,730,549 16,330,430 32,800,852 31,157,635 4,638,050 4,686,000 4,577,819 4,447,733 3,687,082 2,518,358 3,302,748 571,856 470.892 $57,716,109 $125,888,913 $139,758,534 In the foregoing are returns for the year following the Panic of 1873, which was the first year of any report; the latter two years show the progress within the ten year period under consideration. The report shows that three new companies have been added to the list, and nearly two million to the capital stock, and over four and one-half million to the surplus and undivided profits account. However, the assets and liabilites have increased eighty-two millions. The deposits are increased to one hundred five millions, of which thirty—one millions are called general, against a total of thirty-eight and one-half millions in 1874, of which sixteen millions appear under the head51 of general. The total deposits for the hanks of New York City for the same dates are as follows: June, 1874, $233,000,000 July, 1881, 346,000,000 July, 1882, 305,000,000 Thus, it appears that the amount held by trust companies was less than one-sixth of the total deposits held by the city banks in 1874, while in 1882 the reports show deposits in excess of one-third the amount of the entire bank deposits of New York City. This illustrates how large the growth has been and also how large it has been with reference to the total amount on deposit in the City. It will also be noted that whereas the banks held forty-one millions less deposits in July, 1882, than at the same date the previous year, the trust companies held about eleven millions more. In other words their holdings increased and the holdings of the banks fell off 13 per cent. Or, if the capital, deposits and loans are brought together for the same dates the figures are as follows: Banks Dat e __ Caoital Denosits Loans June 30, 1874 July 1, 1881 July 1, 188ft $82,135,200 61.163.700 61.462.700 $232,929,200 346,466,400 305,369,100 $381,791,500 305,491,100 322,884,300 to, aL „gpmpdQleB — Date Capital Deposits _ Loans June 30, 1874 July 1, 1881 July 1, 1882 $11,752,040 11,500,000 12,579 , 500 $ 38,479,791 94,132,337 104,888,185 $ 28,825,923 84,308,398 97,566,31552 Or in other words the size of the Hew York City hanks compared with the Trust Companies is approximately as follows» Number of times larger the hanks were than the trust companies Date Capital _____________D.SP9fitt,fi_______kp&flB_____ (Approximations in each case) June 30, 1874 7.0 6.0 10.0 July 1, 1881 5.3 3.6 4.0 July 1, 1882 5.0 3.0 3.3 Taking the same report and reducing the items to ratios for both the hanks and trust companies, an interesting study may be made, which was later used as a criticism agains the trust companies» ____________Ratio of Deposits to Capital Ratio of Loans to Capital Trust ___ Pate_______SanfcB______Trust Ocmpanles Banks__________Companies June, 1374 #2.83 deposits #3.28 deposits #3.43 loans to #2.45 loans to each $1.00 to each $1.00 each #1.00 to each #1£>0 capital capital capital capital July, 1881 #5.66 deposits #8.18 deposits $5.73 loans to $7.33 loans to each $1.00 to each $1.00 each $1.00 to each $1JD capital capital capital capital July, 1882 #4.97 deposits #8.34 deposits #5.25 loans to $7.66 loans to each $1.00 to each $1.00 each $1.00 to each $1.00 capital capital Capital capital This shows a situation which no doubt caused much apprehension. The ratio of deposits to capital in trust companies was much greater than in the banks; the ratio of loans of trust companies is likewise greater. The chief source of danger here lay in the fact that the trust companies were in no manner restricted in their activities; the management was entrusted to the officers who were allowed almost absolute freedom of enterprise. The statements show that they have over one-third of the deposits53 of all the hanks of the city of New York, yet they were required to keep no reserves themselves, hut depended on their correspondent hanks entirely. The item "deposits in trust" so long as they were actually deposits in trust, relieved the situation somewhat for they were not supposed to he checked against. However 70 as was pointed out, they meant nothing, or at least were true in a very limited way. The criticisms of this situation at the time were not 71 very severe, yet they were beginning. It is pointed out that "at the present no disquietude exists, banks and trust companies are strong, and the need for legal reserves is merely theoretical. Our modern legislation, both State and National, is of a nature to stimulate such a growth; it discourages regularly organized hanks by restrictions and tax burdens, and cultivates every kind of substitute. Banking facilities, the people must have. If our National system has become so unprofitable as to offer no inducement for it to expand with our commerce, other and less desirable devices will spring up." Two years later the criticism is more pointed: the same magazine says, in commenting on the Report of the Superintendent of Banks of New York State, "He (Mr. Paine, Superintendent of Banks) says their number has increased beyond the wants of the 8tate, and .... a general law f will be of benefit in helping check their multiplication........... Trust companies are needful, but only for certain well-defined 70. Supra, pp. 19-27. 71. Commercial and Financial Chronicle, January 20, 1883, vol. XXXVI, pp. 65-6. 72. Ibid., January ).0, 1885, vol. XLI, pp. 42-3.54 purposes; they are misnamed, and in some cases misleading, when, in the garb of trust companies, they exercise the powers of a 7 bank." Another journal says: "We have frequently had occasion to refer to Loan and Trust companies in this city, which do banking business without being subjected to the restrictions of the banking law." During the time when trust companies were building up their deposit accounts by paying interest on deposits, another influence was at work which also aided in doing the same thing. This was not a result of an inducement of interest on deposits, but a result of the inherent weakness of the national system. It will be recalled that before the National Bank act, the principal money was state bank notes. Due to inadequate regulation, the state bank notes were subject to periodic inflation with the resulting evils. Generally speaking, however, state bank notes were asset currency and had some degree of elasticity. With the advent of the National Banking System, the state bank notes were taxed out of existence by a 10 per cent tax, and were bond replaced by national bank notes which were/secured notes. These national bank notes, not being an asset but a bond secured currency, were elastic, but perversely so. When a national bank wanted to issue notes it had to purchase Government bonds, which, of course, meant that the price of bonds would rise, thereby affecting the profitableness of issuing notes. During and after the Civil War the bonds were put out in great quantities. At the 73. Bankers Magazine (New York), March, 1875, vol. XXIX, pp. 676-8.55 same time the price level was high due to inflation of greenback issues. The price of Government bonds was high due to high interest rates which made it profitable for national banks to issue notes. Then as the Government was retiring the public 74 debt, which was done quite rapidly after 1875-6, together with the falling price level and falling interest rate, the price of Government bonds rose. During the same period the country was making rapid expansion and calling for extended monetary service, yet the actual amount of national bank notes was decreasing because the Government bonds were being retired. The actual amount of national bank notes in circulation declined from 1340,880,078 in 1873, which was the maximum, to ♦162,220,646 in 75 1891, which was the minimum. The need for currency could not be met by the state banks, for they could not issue and be taxed 76 10 per cent—hence, the nedd was met by increasing bank deposits. After 1873 the bank deposit became of greater significance than bank note currency. This is indicated by the volume of clearings which in New York increased from $7,231,143,057 in 1860, to $35,461,052,826 in 1873, and to $48,565,818,212 in 1881. Deposits in national banks in the same period increased from $398,357,560 in 1865 to $686,748,630 in 1875 and to $1,066,707,249 in 1882. Deposits in state bankB increased from $257,229,562 in 1860, to $334,995,702 in 1883. The deposits in loan and trust companies 74. Statistical Abstract of the United States, 1921, p. 828. 75. Statistical Abstract of the United States, 1921, p. 830. 76. It is not intended to convey the impression that bank deposits and checks were not used prior to this period. As a matter of fact they were used from a much earlier date, but their use was considerably accentuated in the period under consideration.56 increased even more rapidly; in 1875 they were $85,025,371, and by 1883, $165,378,515; after that they increased at a remarkable speed, amounting to $1,028,232,407 by 1900. Or in other words in 1875 the deposits of trust companies amounted to about 12 per cent of the total deposits of national, state, and trust companies combined; by 1900 the proportion was about 22 per cent. Hence it is seen that the trust companies gained a decided advantage in the period when a change was made from bank note currency to bank deposit currency; this is especially so in view of the fact that, as yet, trust companies were not regulated as to reserve requirements as were both national and state banks. These reasons—the paying of interest on deposits, the lack of regulation and supervision together with the growth of deposit business—drew the trust companies into the banking field. From that time on, their growth has been most rapid, keeping far in advance of the legislation yet abreast of the demands which called them into being. In the early 80*s they were giving their attention to banking activities and the trust business was becoming an adjunct as in previous years the trust business had been an adjunct to the insurance business.CHAPTER III GROWTH AND DEVELOPMENT OF THE BANKING ACTIVITIES OF TRUST COMPANIES SINCE 1SSO58 CHAPTER III GROWTH AND DEVELOPMENT OF THE BANKING ACTIVITIES OF TRUST COMPANIES SINCE 1880 The growth and development of trust companies since about 1880 is one of the most remarkable chapters in American Financial History. Under such stimuli as have been pointed out in the preceeding pages, the trust companies grew to be powerful agencies which in later years, have increased both in number and strength. Their growth was no longer confined to any given area, such as the large eastern cities, but now they are confined only by the territorial bounds of the Nation. Their growth followed close on the heels of economic expansion and increase in wealth. Hence in the times when there were not more than half a dozen or so companies, they were to be found in centers where the most wealth was to be found, such as New York, Philadelphia, Boston. Along with the economic expansion and growth in population and cities, they expanded in a remarkable manner. As has been pointed out, the number of trust companies in 1846 was only about half a dozen;"*” by 1875 the number was probably about 50 although the incomplete returns of the Comptroller of the Currency for that year show 35. In the year 1880 the same source lists the number at 30; however, other sources list the number for the same year at 54. In the next five year period the Comptroller reports on 40 companies while a more accurate figure would be nearer 100.** After the 1. Supra, p. 39. 2. As was pointed out on page 45, the Comptroller had no authority to force trust companies to report to him. Consequently, the59 middle of the 80's the number begins to increase and from then on it rapidly mounts into the thousands. The New England and 3 Eastern States had been the scene of greatest activity in trust company development, but with the opening of the South and West there is a similar development to be found in those sections; 4 however, the growth did not begin until a later period around 1900. number upon which his report is based is taken from the companies which complied with the request of the Comptroller. It is no doubt true the report of the Comptroller includes not many more than half the number of companies doing business. The other source referred to is a series of volumes published each year from 1903 to date by the United States Mortgage and Trust Company of New York. The series is known as "Trust Companies of the United States." It is regarded as the only complete and authoritative tabulation of Trust company statistics available. Estimates of the number of Trust companies in the United States besides those given by the Comptroller are to be found in: National Monetary Commission Reports, Senate Document 659, "State Banks and Trust Companies," by Barnett, Geo. E. Herrick, Clay, "Trust Companies," p. 19. Cator, Geo., "Trust Companies in the United States," published in John Hopkins studies, Series XX, Nos. 5-6. 3. 8enate Document 659 of the National Monetary Commission Reports gives the number of trust companies of the New England and Eastern States as follows: 1877 - 44 1879 - 37 1881 - 37 1883 - 43 1885 - 48 1878 - 40 1880 - 35 1882 - 38 1884 - 42 1886 - 50 4. The following articles deal with the development of trust companies in the South and West, although mainly from a fiduciary side. Johnson, E.F., "How the Trust Company Idea has Prospered in Oklahoma," Trust Companies, July, 1924, vol. XXXIX, pp. 61-3. Hillyer, Wm. H., "Fiduciary Business in the South," Trust Companies, July, 1912, vol. XV, pp. 18-19. Neill, Robert, "Trust Company Business in Arkansas," Journal of American Bankers Association, June, 1924, vol. XVI, pp. 811-12. Lathrop, A.L., "The Trust Companies of the Pacific Coast with the passing of 1917," Trust Companies, January, 1918, vol. XXVI pp. 50—52. Kauffman, P.C., "The Trust Companies Part in the Development of the Northwest," Trust Companies, October, 1906, vol. Ill pp. 677-80.60 A clearer picture of the numerical growth of trust companies, taking the country as a whole, may be seen from Graph I on the following page. The graph shows the increase in number of trust companies from 1875 to date. The black line (0) represents the number of trust companies as reported by the Comptroller of the Currency. The red line (A) represents the number of trust caompanies as given in "Trust Companies of the United States." (See footnote on preceeding paga) The broken line (B) shows the number of trust companies as given in a special report of the 5 Hational Monetary Commission for the years 1877 to 1908 inclusive. The black line (C) shows less than the actual number of companies, for the Comptroller had no authority to obtain complete reports. The relative gain in numbers from year to year can be seen from either of the curves, which is the essential thing this graph is designed to show. The general trend of the curves is the same; each of them show certain interruptions in the increase in numbers, especially for the years 1889, 1892, 1894.to 1898. The graph would indicate that there has been no year in which there were no trust companies established; the curves naturally would show an upward trend for they are based on figures showing only the number of companies organized each year, making no provision for the number which ceased to exist. It will be seen that there was no marked change in the number of companies until about 1884 when they began to increase and have continued to do so ever since, 5. Senate Document 659, p. 248. The sources used are Homan's Bankers Almanac, Official State Reports,"Trust Companies of the United States," and Reports of the Comptroller of the Ourreney.6Æ*a61 except for temporary interruptions* For the seven or eight years prior to 1900, the increase in numbers went on, but at a less rapid,speed than any time previous to, or following that date, even though the number of companies doubled from 1890 to 1900. From 1900 to 1910 the number increased 801 or 876 per cent according) to the report of the Comptroller, and from 290 to 1,091, or about 195 per cent according to "Trust Companies of the United States." The graph reflects the Panic of 1907 which seems to have abruptly stopped the organization of new companies. The years of 1919 and 1920 show a marked change in the trend as reported by the 6 Comptroller; ’however, the other source shows no such a movement. It will be noted that the difference between the number of companies as reported by each of the two sources, remains about the same through the entire number of years; the difference is due to the sources used in making the reports. The Comptroller reports only on the companies reporting directly to that office, together with what reports may be obtained directly from State banking departments; he has not the authority to obtain reports, hence the figures given out from that office are doubtless much less than the actual amounts, and less than the figures as given by "Trust Companies of the United States," which obtains reports directly 6. It is believed the number as given by "Trust Companies of the United States" is more accurate than the number as given by the Comptroller for the record of failures for the same years would indicate that the trend should have been at least steady; the Comptroller does not record more than 4 failures in 1918 and 3 in 1919. The decrease in numbers as reported by the Comptroller is doubtless traceable to lack of information rathern than actual decrease in numbers.62 from the 8tate hanking departments and State Auditors of all the 7 States. The numerical growth of trust companies may he further emphasized hy comparing them with state and national hanks for the same period of 1875-1927. The reports show that in 1875 there were over 2,000 national hanks, over 500 state hanks and 35 trust companies. In the 52 years that have elapsed, the state hanks have shown the greatest percentage of gain in numbers, the trust companies next, and the national hanks least; the percentage gain of state hanks over trust companies has been nearly steady except for the years following 1918. One thing that is very noticeable from the comparison is that the number of trust companies in the year 1927 was considerably less than the number of national banks in 1875, and only about 1,000 more than the number of state banks in 1875, which was 1,500 less than the number of national banks at the same date. Graph II, which follows, clearly emphasizes the comparative growth of the three institutions. Even though the number of trust companies was very small at the time the first records were tabulated and have continued to be relatively few compared with state and national hanks, the banking power of these companies was large and has continued to augment from year to year; the hanking power surpassed state banks during certain periods, and nearly equals national banks at the present time. This particular point will be emphasized on a later page. 7. The statistics from which the graph was made are in Appendix p. 220, Table VI.63-a TABLE I Number and Total Resources of Trust Companies of United States 1S75 - 1926 Date From the Comptroller1 s Reports From "Trust Companies of the United States" Number Resources (000 omitted) Number Resources (000 omitted) 1375 35 $ 122,390 137S 33 127,646 1377 39 123,612 1373 35 110,343 1879 32 111,309 1330 30 126,369 1331 31 156,544 1332 32 194,935 1333 34 212,342 1334 35 239,371 1335 4o 243,339 1336 42 273,314 1337 5S 319,125 1333 120 333,653 1339 120 441,263 1390 149 503,301 1391 171 536,623 1392 163 600,244 1393 223 726,664 1394 224 705,136 1395 242 307,065 1396 260 355,232 1397 25I 343,713 1393 246 942,462 1399 260 1,071,525 1900 290 1,330,160 1901 334 1,614,931 1902 417 1,933,214 1903 531 2,293,554 912 $ 2,910,000 1904 5S5 2,330,237 994 3,133,035 1905 633 2,365,976 1,115 3,301,310 1906 742 2,959,200 1,304 3,943,361 1907 ' 794 3,071,419 1,430 4,220,319 1903 342 2,365,632 1,47? 3,917,442 1909 1,079 4,063,534 1,504 4,ol0,3o9 1910 1,091 4,216,350 1,527 4,610,573 1911 1,251 4,665,110 1,616 5,163,533 3.912 1,410 5,107,444 1,579 5,490,570 1913 1.515 5,123,920 1,732 5,475,972 l§l4 1,564 5,439,500 1,312 5,924,979 1915 1,664 5,373,100 1,777 6,323,M54 1916 1,606 7,023,300 1,932 7,654,791 1917 1,603 7,399,300 2,009 3,956,511 I9IS 1,669 3,317,400 2, l4l 9,330,336 1919 1,377 7,960,000 2,173 11,150,446 1920 1,403 3,320,000 2,24l 12,451,377 1921 1,474 3,131,100 2,390 12,323,430 1922 1,550 3,533,900 2,372 12,739,620 1923 1,643 9,499,300 2,473 14,44i,460 1924 1,654 10,323,300 '2,562 16,025,502 1925 1,630 11,565,500 2,701 13,145,673 1926 1,656 12,205,196 2,634 19,335,270 1927 2,731 20,431,13263 o Not only have trust companies increased in numbers, but their resources show an increase which is even more surprising. The following parallel columns (Table I) show the increase in numbers and resources as is found in the Comptrollers reports and in"Trust Companies of the United States." These columns show the growth of trust companies for a period of slightly more than 50 years. In the first 25 years (1875-1900) the number increased from approximately 35 to nearly 300 companies, or about 116 per cent. In the second 35 year period (1901-1936) they increased from 334 to 1,656 or about 208 per cent. The resources increased from $122,890,000 to $1,330,160,000 or more than ten times in the first 25 year period, and in the second period from $1,614,891,000 to $12,205,196,000 or about eight times. The columns both show changes in the Panic years of 1893 and 1907. In 1893-94 the net change in number of companies was 4, while the resources of trust companies decreased $21,478,000. However, the recovery was quick for the next year (1895) shows an increase in resources of over $103,000,000. Likewise, the Panic of 1907 shows a decrease in assets of $350,787,000 for 1908 and a quick recovery and increase in resources to the amount of $1,202,902,000 in 1909. Aside from these two temporary interruptions the trust company growth has gone steadily on, each year showing larger aggregates than the former one. The growth of trust companies may also be seen by a 8. The numerical increase is further emphasized in Chapter V, p. 170.TABLE II 64-a Individual Deposits of Trust Companies, State Banks, National Banks (000 omitted) Year ________Trust Companies______ Comptrollers Trust Companies Reports of the United State si State Banks National Banks 1875 1880 ISSI 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 35,025 90,008 111,670 144,842 165,379 188,746 188,417 214,063 240,191 257,§73 299,613 336,456 355,330 411 660 486,244 4/1,299 546,653 586,468 566,992 662,138 335,499 1,028,232 1,271,081 1,525,387 1,539,339 1,600,332 1,980,857 2,008,938 2,061,623 1,866,964 2,835,835 3,073,123 3,295,856 3,674,578 3,543,659 3,905,952 4,179,323 5,184,304 5,782,869 5,959,533 5,678,424 6,065,967 5,611,787 6.495.928 6,831,018 7>785,33! 8,536,860 8.900.928 2,306,485 2,847,256 2,916,081 3,095,139 2,787,503 3,422,990 3,308,287 3,601,299 3,858,355 4,025,661 4,628,1072 5,010,051 6,247,570 7,362,830 7,412,963 8,776,347 9,764,751 9,554,012 10,470,477 11,828,983 13,289,148 15,097,778 15,982,226 16,824,822 Ì 165,871 208,752 261,362 281,835 334,996 325,366 344,308 342,883 446,560 4l0,048 507,084 553,055 556,637 648,5l4 706,866 658,107 712 410 695,660 723,641 912,365 1,164,201 1,266,735 1,610,502 1,698,185 1,814,570 2,073,218 2,365,210 2,741,464 3,068,650 2,937,130 2,466,959 2,727,927 2,777,567 2,919,978 3,036,882 3,189,737 3,231,654 4,284,554 5,376,701 6,094,562 8,976,046 10,836,188 10,675,467 10,107,579 11,130,142 11,755,233 12,682,753 13,158,075 # 686,479 833,701 1,031,731 1,066,707 1.043.138 979,020 1,106,377 1,146,247 1,285,0/7 1,292,342 1.442.138 1,521,746 1,535,069 1,753,340 1,556,761 1,677,801 1,736,022 1,668,414 1,770,481 2,023,357 2,522,158 2,458,093 2,941,837 3,098,876 3,200,994 3,312,440 3,783,658 4; 045¡874 4,322,880 4,374,551 4,989,577 5,287,216 5,477,991 5,825,461 5,850,543 6,143;245 6,428,143 7,850,615 9,323,413 10,029,428 11,891,132 13,705,325 12,405,631 13,264,366 14,043,460 14,853,183 16,354,912 17,092,412 ^Published by the United States Mortgage St Trust Company. ^Includes Due to Banks and Bankers, shora. separately in previous figures63-a64 comparison of their individual deposits with those of state and national hanks. In this table (Table II) as in the former (Table I), the Report of the Comptroller of the Currency is used, and the deposits as shown by "Trust Companies of the United States" appear in the column next to the Comptroller's Reports, iathe fifty year period the increase in deposits has been from $85,025,000 to $8,536,860,000 or a gain of $8,451,835,000 or nearly 1000 per cent. The gain in the first twenty-five year period was $933,207,000 and in the second twenty-five year period $7,365,799,000 or a gain of nearly 110 per cent in the first and 77 per cent in the second g period. The gain in deposits as shown in "Trust Companies of the United States" from 1904-28 was from $2,306,485,000 to $16,824,822,000 or $14,518,337,000 which amounts to nearly 63 per cent, while the gain in state and national bank deposits was 43 and 33 per cent respectively. During the fifty year period the state banks gained in deposits from $165,871,000 to $12,682,753,000 or 750 per cent. The national banks likewise gained from $686,479,000 to $16,354,912,000 or 230 per cent. The increase in individual deposits in each of the institutions may be seen from the following graph (Graph III) which shows the growth for each type of institution. The striking thing about the graph is the coincidence of the general features of the lines showing deposits of state banks and trust companies. It is also evident that about 1897 marks the year after which all the classes of banking institutions gain most rapidly. Attention is called to that particular point here, for 9. All figures presented herewith come from the Report of the Comptroller for the year 1926, and Statistical Abstract of the United States for 1956. ___________________________64-al65 it does not seem to corroberate the popular impression that trust companies made their gains at the expense of the other banks. On the other hand it would indicate that trust companies were sharing along with the other banks in the general prosperity of the country. The graph shows the reaction in 1908 of the Panic of the previous year; the next year (1909), however, shows a recovery which is quite pronounced. From the graph it is readily seen how the individual deposit curve of trust companies increases, when compared to the others. This is especially significant considering the relatively small number of trust companies.^ The figures and graphs which have been presented, will serve to give a picture of the growth in numbers and financial significance of the trust company from 1875 to date. (It is to be remembered that these represent only the banking resources of trust companies and does not include the amount on hand as a result of their trust operations.) Other features of their growth will be taken up in a later chapter. To go back to the beginning of the period under consideration (1875 to date), certain causes may be found which aided in the development of trust companies. 10. It is well to bear in mind that the reports of growth as is shown in the table are complete statistics for National banks, and fairly complete for State banks and for Savings banks. The statistics for Trust companies are far from being complete. For instance, the report of the Comptroller for 1907 contains figures for but one Western state, Kansas, and for but one southern state, Kentucky. It omits the resources of companies in the States of Ohio and California, and is very incomplete in the other states.' However, the chief value is to give a basis for comparison.66 As has been pointed out, ^ the deposit business developed very early into a deposit subject to check business. Also the trust IS companies followed a policy of paying interest on deposits within ten years after the beginning of the period under consideration, (1885) banks were beginning to complain of competition from trust companies. From then on until the last few years, the i •* 14 financial magazines and banking circles have much to say relative to "the trust company problem," "the rise of trust companies," "the rapid growth of trust companies," "trust company reserves," "trust company regulation," and so on. The following are some comments which appeared at various times, which will also serve to snow some reasons why trust companies have grown. (The comments are summarized, not quoted in full.) As early as 1875 the Bankers Magazine (New York) in an editorial remarks: "We have frequently had occasion to refer to the Loan and Trust Companies in this city, which do a banking business without being ^r subject to the restrictions of the banking law." 11. Supra, p. 19. 12. 8upra, p. 6. 13. Such as Bankers Magazine (New York), Commercial and Financial Chronicle, Rhodes Journal of Banking. 14. Such as the American Bankers Association; later the Trust Company Section of the American Bankers Association. 15. Bankers Magazine (New York), March, 1875, vol. XXIX, pp. 676-78.67 16 An article appearing in April, 1889, points out: Their (trust companies) rapid increase, created and directed by sagacious business men, is the clearest indication that they regard the trust company as better adapted for money making than a bank, for no more money is required as a foundation in the one case than in the other. Their success in attracting deposits is convincing proof of their favor in the eyes of the public. The reasons attributed for this are: (1) trust companies are favored in matters of taxation over the banks; (2) that trust companies pay interest on deposits. The trust companies are so rapidly gaining deposits that the banks should inquire whether they must not offer new inducements of some kind to hold their old depositors and add new ones to their numbers. Another article in May, 1891:^ An unusual number of trust companies are being organized in all the states for the purpose of doing banking business. This form of organization i8 becoming very popular, because of the large variety of business which it can do and National banks cannot. In some states, notably Pennsylvania, banks have been slow in adopting the practice of trust companies in paying interest on deposits; the result is the deposits have gone to the trust companies. In an account from a concern in Baltimore it is said the trust companies do not do a general banking business or discount commercial paper, but they do make large loans on collaterals, and thus compete with the banks. Still another, in March, 1892:^® The National banks are feeling the pressure of the trust companies in several ways. First, in nearly all the states they are not required to maintain reserves, and usually escape with less taxation. Their latitude is wider and they are able to do many things forbidden to National banks which have been profitable. In Massachusetts they are invading the field of Savings banking, and a new source of criticism has arisen from this source. The Savings Bank Commissioner speaks of the remarkable growth of trust companies in that state throughout the country, and points out that the growth has not been due solely to advantages 16. Bankers Magazine (New York), April, 1889, vol. XLIII, pp. 721-29. 17. Ibid., vol. XLV, May, 1891, pp. 852-3. 18. Ibid., vol. XLVi. March. 1892. pp. 695-6.68 but to the fact that they have been managed by men of great energy. The Commercial and Financial Chronicle for August, 1898 says: One of the most interesting phenomena of the times—in a period in which expanision is visible everywhere—is the wonderful growth in the business and resources of trust companies. To the theorist, unacquainted with the true state of things, nothing would have seemed more natural than to see a decline in the magnitude and business of these companies in recent years. Every one of them allows interest on deposits from 1 to 5 per cent. It is easy enough to see that such an operation must be made profitable when money in the market is in urgent demand and interest rates rule high. As a matter of fact, however, of late years it has been almost impossible to find profitable remuneration for idle funds. In the case of call loans (a favorite form of investment for the trust companies, since it leaves the money within reach, readily available in case of an emergency) the rate has ruled for long periods at not above one to one and a half per cent, and at times funds have been practically unlendable. Even for time mone frequently not more than 2 or 3 per cent has been obtainable. It is furthermore pointed out that some of the larger trust companies of the city have increased as much as 30 per cent in a year, while the aggregate resources of trust companies of the State of New York have more than doubled since 1891. These comments seem to be typical. They emphasize the advantage which has resulted from the fact that trust companies were not taxed the same as banks, and, that trust companies have built up large deposit accounts as a result of offering interest on deposits. Furthermore, the trust companies were not required to keep reserves which tied up large amounts 19. Commercial and Financial Chronicle, "Growth and Expansion of Trust Comapnies," August 6, 1898, vol. LXVII, pp. 251-3.69 of the cash of banks, thus allowing the trust companies an advantage in this respect. These things, together with the complete lack of State supervision and control, furnished a just basis of complaint. In view of these criticisms directed at trust companies, it is necessary to inquire into the charges to find out if they were just or if they were grumblings of the banks. Taking up the first charge, that trust companies were not taxed the same as banks, hence giving the trust companies an advantage over both national and state banks. Going back to the national Bank Act as originally passed, there was no authority granted to States to tax shares of 20 national banks. State taxation of national banks shares was made lawful only the Law of Congress first enacted as a provision of the National Bank Act of 1864, which, as amended by the Act of February 10, 1868, is embodied in Section 5,219 of the Revised Statutes of the United States. This section provides that "taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State." As Congress was conferring power upon the States which they otherwise would not have had, viz., to tax these shares, it undertook to impose a restriction on the exercise of that power 30. National Banks by the Law of 1863 were required to pay three kinds of taxes to the Federal Government: (l) one per cent annually upon the average amount of notes in circulation; (2) one half of one per cent upon deposits; (3) they were required to keep a reserve of 25 per cent in city banks and 15 per cent in country bankB. They could not use the reserve,,yet they were taxed upofciit. Hunter, M.H., "The Development of Corporation Taxation in the State New York," p. 103. .-- - -............-_____________________________________=_______!70 manifestly designed to prevent taxation which should discriminate against that class of property, as compared with moneyed capital. The main purpose of Congress in fixing limits to State taxation on investments in the shares of national banks was to render it impossible for the State in levying such a tax, "to create and foster an unequal and unfriendly competition by favoring institutions or individuals carrying on similar business and operations and investments of like character."**1 A case arose in Pennsylvania which finally was settled in the Supreme Court of the United States, being an injunction to prevent collection of certain taxes levied against the shares of stock of a national bank. The charge was that unfair discrimination was being made 22 which was contrary to Section 5,219 of the United States Statutes. The decision of the court was that "while exact uniformity or equality of burden cannot be expected under any system (which in the nature of things is impossible), capital of national bank shares was intended by Congress to be placed upon the same footing of substantial equality in respect to taxation by State authority as the State establishes for other moneyed capital in the hands of 21. Mercantile Hational Bank vs. Hew York, 121, U.S. 138 (1887). Newark Banking Company vs. Newark, 121, U.S. 163 (1887). National Bank of Redemption vs. Boston, 125, U.S. 60 (1888), 22. Section 5219 is as follows: "Nothing herein shall prevent all the shares of any association from being included in the valuation of the personal property of the owner or holder of such shares, in assessing taxes imposed by authority of the State within which the association is located; but the legislature of each State may determine and direct the manner and place of taxing all the shares of national banking associations located within the State, subject only to the two restrictions, that the taxation shall not be greater than is assessed on other moneyed capital in the hands of individual citizens of such State, ant that the shares of any national banking association owned by non-residents of the State shall be taxed in the city or town where the bank is located, and71 individual citizens, however invested.” It was shown that there was discrimination against capital invested in National hanks, and the injunction was granted to enjoin the levying of the tax 23 on National hank shares. In the light of the original act and the decision just cited, many national hanks made complaint that the principle of equality intended to he established by the Act between capital invested in such shares and other moneyed capital had been violated, and, that they were taxed at a higher rate by the States than other moneyed capital in the hands of private citizens. The first complaint on the part of the national banks came from Pennsylvania where it was claimed that inequalities existed. In that State it was found that the taxing system, imposed by the laws of the State, appeared to exempt from taxation for local purposes all mortgages, judgments or recognizances, whatever, and all moneys due or owing on articles of agreement for the sale of real estate, all loans issued by corporations which were liable to pay a designated State tax, all bonds or certificates of indebtedness of any railroad company incorporated by the not elsewhere. Nothing herein shall be construed to exempt the real property of associations from either state, county, or municipal taxes to the same extent, according to its value, as other real property is taxed. Bank of Commerce vs. New York City, 2 Black, 620. Van Allen vs. The Assessors, 3 Wall, 573. People vs. The Commissioners, 4 Wall, 244. Bradley vs. The People, 4 Wall, 459. National Bank vs. The Commonwealth, 9 Wall, 353. 23. Boyer vs. Boyer, 113 U.S. 689 (1884). Merchants National Bank of Toledo vs. Cumming, 101 U.S., 153 (1879) . Pelton vs. Commercial National Bank, 101 U.S., 143 (1879). 73 Commonwealth, and all shares of stock in the hands of stockholders of any corporation of the State liable to pay a specified tax into the State treasury. The decision handed down by the court was that, "in respect to county taxation of national bank Bhares, there has been and is much discrimination in favor of other moneyed capital against capital invested in such shares as is not consistent with the legislation of Congress," and the collection of taxes levied under an assessment upon such national 24 bank shares could not be enforced. Encouraged by this decision, "thirty-five National bank associations located in the City of New York brought suit to restrain the collection of taxes levied pursuant to an assessment made in January, 1885, upon the shareholders of the several associations." The same complaint was made in the petition as had been made in Pennsylvania which was decide® in favor of the national banks. However, the Court of Appeals in New York ° held that "after careful examination of the statutes and a comparison of the burdens laid upon the property, capital and business of the people under the laws of the State of New York, will show that the money invested in national banks is subjected to no greater burden than that imposed upon other species of assessable property." Another case came up at about the same 24. Boyer vs. Boyer, 113 U.S., p. 690 (1884). 25. McMahon vs. Palmer, 6 N.Ti. Reporter, 400, April 16 (1880.73 time in the United States Circuit Court, Southern District of New 36 York. In this case the Court held, "if there is a discrimination between taxation imposed upon National bank shares and that imposed upon the other moneyed capital of individual taxpayers, there can be no valid assessment of National bank shares, and these shares will be relieved from any contribution whatsoever to the general burden of taxation;" but after an exhaustive review and consideration of the statutes of the State and the decisions of the Supreme Court of the United States, the Court reaches the conclusion that there is not manifested any "unfriendly discrimination on the part of the State as between shares of National bankB and moneyed capital generally, and that the taxing system does not result in taxing National bank shares at a greater rate than is assessed upon moneyed capital in the hands of individual citizens of this State. The chief point at issue was over the meaning of "moneyed capital." It was contended that the trust companies were not banking institutions and therefore did not come into 26. The Mercantile National Bank of the City of New York vs. the Mayor, etc. of the City of New York, and Geo. W. McLean, Receiver of Taxes, 7 Sup. Ct. Reporter 826 (1887). 27. "Greater rate" refers to the rate of taxation ¡exclusively and not to the assessed valuation. Williams vs. WAaver, 75 N.Y. 30 (1879). j Another case (Pelton vs. Commercial National Bank, 101, U.S. 143 (1879)) says: "any assessment of taxes which exacts from the owner of the shares of a national bank a larger sum in proportion to the actual value of those shares than it'does from similar moneyed capital, valued in like manner, taxes the shares at a greater rate, notwithstanding that the percentage of tax on the valuation is the same as that applied to such other moneyed capital. Also Whitbeck vs. Mercantile Bank, 127, U.S. 193 (1888).74 competition with banks; hence, their shares were not considered taxable as were the shares of national banks. The business of banking as defined by law and custom, consists in the issue of notes payable on demand, intended to circulate as money, where the banks are banks of issue, in receiving deposits payable on demand, in discounting commercial paper, making loans of money on collateral security, buying and selling bills of exchange, negotiating loans, and dealing in negotiable securities issued by the Government, State, National, and municipal, and other corporations. Corporations and individuals carrying on these operations do come into competition with the business of national banks, and capital thus employed is what is intended to be 28 described by the Act of Congress. In other words, the term "moneyed capital" as used in the Section, does not include capital which does not come into competition with the business of national 29 banks. Exemptions in savings banks and moneys belonging to charitable institutions, which are exempt from taxation for reasons of public policy, are not unfriendly discriminations against investments in national bank shares. Hence, all that was necessary, was for trust companies to show by their charters that they were not banks. The actual activities of trust companies 28. Mercantile National Bank vs. New York, 129, U.S. 138 (1887). Talbott vs. Silver Bow County, 139, U.S. 438 (1891). Palmer vs. McMahon, 133, U.8. 660 (l890). National Bank of Redemption vs. Boston, 125, U.S. 60 (1888). First National Bank vs. Chapman, 173, U.S. 205 (1899). 29. "Moneyed capital" in the revised statutes is practically confined to banks and private money lenders and that the imposition of a lower rate of taxation on other corporations does not invalidate the bank tax." Seligman, E.R.A., "Essays on Taxation," pp. 155-6.75 seem to have been disregarded. 30 As was pointed out, all trust companies chartered in Hew York up to 1886 were chartered under a special legislative grant. By Article 8 of the Constitution, the creation of corporations by special legislation is prohibited, except for municipal] purposes, and in cases where in the judgment of the Legislature, the objects of the corporation cannot be attained 31 under the general lAws. Thus the trust companies being created by special grant, were given special privileges not granted to banks under the general banking laws. The charters of trust companies empowered them to do all kinds of insurance, annuity, and trust business as such. In creating the first companies the State legislature made use of the following careful language: "And also provided, that nothing in this act shall be so construed as to authorize the said corporation to receive any deposit or deposits, nor to discount any promissory note, bond, due bill, draft, or bill of exchange, nor shall it be construed as to allow any banking business or privileges whatever."32 Had the trust companies stayed within the bounds of their charter grants, there would have been no complaint, but as pointed out by the Superintendent of the Banking Department of Hew York State.'*'* 30. 8upra, footnote 3, p. 2. 31. Supra, Article 8 is given in full, footnote 3, p. 3. 32. Supra, Laws of New York, chapt. 50, sec. IV. 33. Annual Report of the Superintendent of the Banking department, State of Hew York, (W.S. Paine) December 30, 1886, p. 17. Hr. Paine, later on in his report, refers to recent bills which were introduced into the Legislature to incorporate trust companies; he says "when, perchance, charters are obtained, they have in some instances been hawked about the streets of Hew York to be sold to whomever might desire to buy........... If the rapid in- crease is permitted, there is reason to believe that in time not a State bank of discount and deposit will exist in the metropolis.1176 NA vague belief exists that these corporations (referring to the trust companies) act only as caretakers of funds belonging to estates, or such as are in custody of the courts, or generally in a fiduciary capacity: e.g., as the trustee of mortgages. But, at the present time there is no practical difference between the business transacted by them and that of the State banks of discount and deposit. They make loans on collaterals, purchase consmgrcial paper, and receive deposits subject to checks."34 The ease of obtaining charters together with the wide latitude of powers formed a just basis of complaint from the banks. The banks were the only corporations in the State, the shares of 34. That trust companies were doing a type of business which was not in their charter powers is evident from the following statements which appear in the report of the Superintendent of Banks for 1887; the reports bear a date them the following cases have been Capital of December 30, tabulated: Deposits subject to check 1886. From Loans on collat eral Central Trust Co. Farmers Loan and Trust #1,000,000 $18,430,921 $13,328,892 Co. 1,000,000 19,504,861 15,746,255 Mercantile Trust Co. 2,000,000 16,760,830 13,869,113 Metropolitan Trust Co. lew York Life Insur- 1,000,000 4,453,384 3,382,900 ance and Trust Co. 1,000,000 14,382,553 4,295,950 Union Trust Co. United States Trust 1,000,000 22,82 ,582 19,897,831 Co. 2,000,000 32,189,954 22,788,360 These were not loans made on real estate nor were they investments in bonds of the United States or States or cities or municipal corporations. They were loans on collateral security $ust the a&me as those made by banks. The freedom from taxation enabled the trust companies to make loans on the same kind of best collateral as banks at a rate from one to one and one-half cheaper than the banks. This gave them the cream of the market.77 capital stock of which, were taxed, while the shares of capital stock of the trust companies were placed in the same category with railroad, insurance and manufacturing corporations, and their 35 capital may be invested in Government bonds, which are not taxable. Prior to July 1, 1882, shares of capital stock of trust companies organized under the laws of the State of Hew York were taxable in the hands of individual holders, in the same manner and to the same extent that the shares of capital stock of national and state banks were taxable; that is, they were included in the valuation of the personal property of the stockholders in the assessment of taxes 36 at the place where the company was located. But an act passed 37 on July 1, 1882 to revise the statutes of the state relating to banks, banking associations, and trust companies made no provision for taxing trust companies Buch as waB made for taxing banks and 24 5,507,357 9.644.293 4,752,023 4.656.293 430,884 6,358,600 404,355 721,400 3,455,900 669 184 642,826 3,172,709 469,000 1,490,473 532,019 272,490 714,295 1,417,100 277,711 522,393 2.639.300 1,161,700 2.557.200 501,014 2.494.200 692,204 795 =?2, m, 12.16 15.44 5.14 12.95 10.90 8.73 9.99 9.25 10.90 18.93 43.73 4.16 10.45 12.65 5.26 15.76 14.73 55.44 13.77 14.01 ll:ll 6.70 8.23 14.62 1^.72 12.96 $M 8.0 9-3 16 6 ÎI IS 24 20 23 17 3 2 30 19 !5 28 5 7 1 12 11 4 10 27 25 l 13 21 26 22 ^■Report of Superintendent of Banks, 1891, for State Banks and Trust Comaanies, Senate Document 65 Report of U. S. Comptroller, 1890, for National Banks. 2Made uo of dividends paid and additions to Surplus and Undivided Profits Account.1890 Earnings of Trust Companies of Surplus and Undivided Capital Stock Profits Jan, 1,1891 Jan.1,1891 Deposits General and in Trust Trust Companies Additions to Surplus and Undivided Profits Dividends Paid for the year .New York City Fercentageof Total earnings Percentage Surplus and for year (Expenses Deducted ) earned on Undivided - ro- WTôôô —97904.73 71,ÏÏ4F.22'~ Atlantic Trust Co. -■ x: coirlo? 1,000,000 P5,073.57 192,282.^6 Central Trust Co, 4,132.68 3,000.00 500,000 2,716.22 10,780.63 Continental Trust CO, 2,716-22 1,000, ;00 36,562-93 2o2.259.69 Farmers Loan and Trust Co. 2,151.63 2,500.00 500,000 6,070.56 13,775-94 Holland Trust Co. 257-06 500.00 750,000 2,719.09 41,205-96 Knickerbocker Trust Co. 1,436.20 1,000,000 1,609.10 24,569.03 Manhatten Trust Co. 331.56 1,000,000 7,169-35 33,510.7s Mercantile Trust Co. , 545.45 600.00 1,000,000 21,727.09 178,406.90 Metropolitan Trust Co. 830 81 2,500 00 2,000,000 14,210 20 230,603-93 New York Life Ins. and Trust Co.1,889-85 1,800.00 1,000,000 6,698.43 44,566.09 Nw York Security and Trust Co . 1,501.69 509,000 2,520.56 6,761 98 Real Estate Loan and Trust Co. 2,520.56 1,000,000 6,028.09 45,372.19 State Trust Co. 976.43 1,000,000 07,520.28 252.821.35 Union Trust Co. 2,148.63 2,000.00 2,000,000 76,442.93 364,396.91 United States Trust Co. 5,514.65 5,000.00 —500,000 2,946.48 22,911.34 Washington Trust Co. 237-42 15,250,000 279,919.56 1,796,977-70 '27,955-00 18,500.00 2,194-97 7.132.68 2,716 22 4.651.63 757-06 1,436.20 331.56 1,145.% 1,669.19 3,689.85 1.591.69 * 2,520.56 976.43 4.148.64 10,514.65 237.42 45,624.19 Capital Stock fits to Caoital Stock Gains in Deposits for the year Net Worth Percent of Earnings to Net" Worth TTW 71.32 54.32 46.51 15.14 19.14 3.31 11.45 16.69 18.45 I5.OI 50.41 9-76 41.48 52-57 4.74 29.91 'T9>;:ô9 450.73 54 32 365 62 121.41 36 25 16.09 71.69 217.27 71.05 66.9S 50.41 9-76 41.48 n-M T73“%" 1. 1. 1 1. ■”-■£2 $.64’ 29,739.10 10.780.63 7,388.69 923.39 10.630.64 17,425.72 49,591-84 4,595 52 16,195.44 20,743.36 6,761.98 34,495.81 2,468.75 3,306.71 52 4 2u?‘- 1KÖS 174907^73" 5,507,357 711,022 4.658.293 1,107,056 1.021.909 1.160.910 3.421.020 1,716,935 3,172,709 1 669,843 752,056 1,502,309 4.752.020 9.644.293 , 794,646 . 43,241,456 T477^ 12.95 33.17 I'M 14.0 2.0 IO.79 6.67 6.26 8.99 33.52 6.O9 8.73 IO.9O Rank In point of earnings for the year In ooint of In DOint of additions to Surplus deposits for and the year Capital Stock In point of earnings on Net Worth 12 ~5 ■ . . . 5 2T 1 15 1 5 2 7 13 1 5 13 4 8 11 11 7 11 8 6 15 4 16 14 16 16 9 1 9 7 13 2 8 12 10 5 5 14 12 4 10 9 4 8 14 2 14 3 11 13 7 16 3 10 3 2 2 6 -iS 10 ii •Report of Savings Banks and Trust Companies as shown by Superintendent of Banks of New York, 1891, Senate Document 65,1891 1. Shrinkage89II stringency, a cash reserve of 25 per cent or over. The departures from the last rule were brief and seldom important. Within comparatively few years, by methods which thrive best in the dark, there has grown up a parasite system feeding from and sustained by the old one." The trust companies were sure of building up their deposit accounts by the inducement of paying interest which varied from 2 to 7 per cent. The deposits of trust companies compared with clearing house banks show that to have been the case. The deposits of the same eleven companies under consideration, are of every description, being, for the most part, regular deposits subject to check. (It is impossible to tell from the statements just the extent of this.) This money is invested in bonds and mortgages, stocks and bonds, loans on collateral,and personal securities (meaning commercial paper). The following are the chief items out of the aggregate resources of the eleven companies, which equals 1178,000,000, representing about #158,000,000 invested in the following named securities! Bonds and Mortgages............$ 5,916,665 Stock investments ............. 38,315,289 Loaned on collateral ..... 100,764,018 Loaned on personal securities . 12.766.805 Total investments . . . #157,762,777 Total resources .... 178,203,098 As has been pointed out, the cash held by these eleven companies amounted to slightly over #17,000,000 against #147,000,000 deposits. If there should be a run on the cash, the trust companies break for the banks where they have their cash deposited. If the banks have not the cash to meet the demand, the next recourse is to call in the loans made on collateral security.90 The funds thus called can come only from the banks, and, in such a case, if the bank funds are low, there is created a situation which might lead to a bad money stringency with disastrous results. 8uch actually did happen in 1907 when the Knickerbocker Trust Company of New York failed and tied up the funds in the New York C C banks, precipitating the Panic of 1907. Graph IV on the next page shows the ratio of cash to deposits for each year from 1875 to date as reported by the Comptroller of the Currency. The graph shows the relative increase of cash to deposits; it will be observed that each has the same general trend yet the cash shows a very great unevenness in its movement compared with the increase in deposits. Graph V on the following page illustrates the great variation in the percentage of cash, which ranges from 10.6 per cent which is the highest to 66 2.0 per cent which is the lowest for the 51 years. The average cash for the entire period was 5.8 per cent; however, certain periods appear in the variation which show as low as 2.0 per cent. (Note especially years 1882, 1883, 1884, 1901, 1902 which were all very near 2.0 per cent even.) The period of years from 1901 to 1909 show (Graph IV) the greatest percentage of increase in cash to deposits, while the increase in deposits was not so pronounced. This, of course, shows the effect of the Panic of 65. Scroggs, W.D., "A Century of Banking Progress," pp. 253-4, 258-60. On these pages emphasis is given to increase in numbers and decrease in cash reserves of trust companies. 66. Figures from which these graphs were made are in Appendix D Table IV, p. 218.90-a91 1907. While the tendency for deposits in trust companies has been to increase rather rapidly since 1908, the same tendency is not a characteristic of the cash; the years following 1917 show a marked falling off in cash, reaching a point in 1918 which was 67 lowest since 1906 and nearly as low as 1907. It will be readily seen that the cash reserves kept by trust companies over this period of time was much less than the legally prescribed amount kept by national banke. The National bank laws prescribed a minimum; the State laws which created the trust companies made no mention of cash reserve. Hence, one can say that the earning power of the trust companies as compared with the national banks was nurtured by the State to the disadvantage of the banks. As competitions in the contest for business of discount and deposit the State had, to a degree, diminished the efficiency of the institutions created by the National Government. Trust companies accepted deposits subject to check; they made loans on pledge of security; they invested in commercial paper; they were doing these things in the same way as the chartered banks. At the same time they were not required to keep a cash reserve of any portion of these demand deposits, and they could loan any amount without restriction to a single borrower. This, of course, very naturally would increase their earning power, which 88 furnished a just complaint by those who were affected. The 67. The percentage figures as appearing in the Appendix for the years mentioned are: 4.9 in 1918, 4.0 in 1906, and 5.3 in 1907. Appendix G , p. 221» These points are further emphasized in Chapter V, p. 180. 68* For the year 1884 the trust companies of New York City earned and paid an average dividend of 16^ per cent compared with the92 following table emphasizes this point. It is seen from Table HI which shows the earnings for 30 institutions in Hew York City for the year 1890. The first two places are held by national banks, the third by a state bank, and the next four by trust companies. The extremely large surplus compared with the capital stock of the first bank earns for it first place with a percentage earned on capital stock of over 272 per cent. The trust companies which occupy fourth to eighth places show a percentage earned on capital stock amounting to an average of 52.97 per cent as compared with an average of 51.54 per cent for the entire 30 institutions. The earnings on net worth of the 30 companies average 14.01 per cent and range from 4 per cent to 55 per cent. The percentage earned by the four trust companies, which rank from fourth to eighth place in point of earnings on capital stock, show an average of over 10 per cent earnings on net worth. These 30 institutions with a capital stock of #16,000,000 held #55,000,000 in surplus and earned a sum of more than 50 per cent on the capital invested. Taking the trust companies alone for the year 1890 and making a comparison of earnings for the same period as presented for national banks, state banks,and trust companies, we find results nothing short of marvelous. Their gains when placed side by side with national and state banks leave no question as to which yields the largest returns on investments in the three types of institutions. This is emphasized in Table IV which follows. Here it is seen that the earnings of trust companies for 8 8/10 per cent of the National banks. Rhodes Journal of Banking, September, 1886, vol. XIII, Ho. 9, p. 742.93-a92-b TABLE IV93 the year was 29.91 per cent on the capital stock as against 17.82 for national banks®^ and 14.46 per cent for state banks. The per cent of earnings to net worth of trust companies amounts to 12 per cent as against 9 per cent of national banks,70 and about 7 69. Statement of Condition of Hew York City National Banks, 1890: (In thousands of dollars, i.e., 000 omitted) Number of Banks Cap ital 8tock Surplus Capital and Surplus Cross Earnings Sept. 1, 1889, to Mar. 1, 1890 45 48,850 34,121 82,971 9,278 Mar. 1, 1890, to Sept. 1, 1890 i 46 48,800 35,823 84,623 9,894 Average ... Sum ... . . • 48,825 69,945 83,797 .,.,19.173, Losses and Expenses Net Dividends Premiums and Taxes Earnings Sept. 1, 1889, to Mar. 1, 1890 1,476 3,796 3,735 2,282 Mar. 1, 1890, to Sept. 1, 1890 1,848 3,555 4,490 2,291 Average .... 3,325 7,352 8,226 4,574 Ratios Earnings on Capital Net,Earning to Capital M Dividends and Surolus Dividends to Capital Sept. 1, 1889, to Mar. 1, 1890 4.50 2.75 4.67 8.64 Mar. 1, 1890, to Sept. 1, 1890 5.31 2.71 4.70 9.18 Average .... Sum 9.81 5.46 8.37 17.72 Comptroller's Report, 1890. 70. For the entire country the net tamings of national banks to capital and surplus was 8.6 per cent. Comptroller's Reports, 1890.94 per cent for state banks. Or in other words the profits of the trust companies was double that of the state banks and more than 50 per cent greater than national banks. Taking one company, for example? it is seen that this company with a capital stock of $2,000,000 has a surplus of nearly $8,000,000 and deposits of over $36,000,000, making in all about $46,000,000 which may be invested, the earnings of which revert to the group which owned the first $2,000,000. It is little wonder that shares of stock of this company were quoted for years in succession at figures as 71 high as $2500 per share. The trust companies, as a general rule, had little or nothing to Bay in answer to the charges. They were prospering, and had no cause about which to complain. If any defense at all was offered, it was usually a mild contention that they were not banks because they did not solicit or desire accounts with merchants, and they were in no sense the "wings of commerce" as banks had been euphoniously called. In defense of paying interest, their argument was that they could do it because they were not commercial banks and did not desire active accounts, hence they were not called upon to furnish a line of credit to their customers. Because of this then, they resembled a savings institution on a large scale, more than a commercial bank. A typical argument offered in defense of their activities is seen 72 in the following statement: 71. See Appendix E, p.219., for quotations from 1895-1975. 72. Colonial Trust Company, Trust Manual, 1898, Quoted in Smith, J. G~, "The Development of Trust Companies in the United States," p. 338. •The United States Trust Company95 A bank receives the deposits of the business community without interest and in consideration therefor agrees to distribute its funds among its depositors as their several needs may require, and the available funds permit. The right to a discount is the compensation which a depositor receives for giving the bank the use of his deposit s, and is, to a certain degree, at least, dependent upon his average balance. On the contrary, the very idea of a trust company presupposes the payment of interest upon its deposits, and while therefore it is under no direct obligation to extend credit to its depositors, it is at all times ready and willing to extend such credit as is consistent with conservative, prudent banking .... While banks discount notes, trust companies usually required collateral security. The trust company can support larger enterprises, and for a longer time. It can loan directly dpon real estate which a bank is prohibited from doing. Statements such as this did not serve to appease the national and state bankers; it only augmented the contentions by calling attention to the powers the trust companies had which banks did not have. As a result of the activities of trust companies, very serious controversies arose between chartered banks and the trust companies. The points at issue were those which came in conflict with the powers of the chartered banks, Buch as have been pointed In the first place, the trust companies were paying interest on deposits which attracted business at the expense of the banka. The banks were slow to adopt this practice of trust companies, and as a result the deposits flowed to the trust 73. There is no evidence that the banks ever looked with an envious eye on the fiduciary business of trust companies, until the field of banking had been preempted by the trust company.96 companies. In a circular put out by a banking house in Baltimore, 74 the following remarks appear on this subject: That the trust companies are infringing on the supposed prerogatives of the banks is clearly evident. During the past ten years there has been only a small increase in the aggregate deposits of our city banks.........In looking around for the cause, we soon found the trust companies had captured the deposits. Our trust companies do not published their statements, but their deposits run into the millions.........At the present time our trust companies do not do a general banking business or discount commercial paper, but they do make large loans on collaterals and thus compete with the bank. It appears that the banks were very reluctant to begin the principle of paying interest on deposits. The banks contended that they could not do it, because they offered a line of credit to their customers which would recompense for lack of interest payment on accounts. However, this argument was not sufficient to hold the deposits. They were withdrawn and transferred where they would earn something--"so rapidly, indeed, that the bankB should inquire whether they mu>st not offer new inducements of 75 some kind to hold their old depositors and add to their number." The banks did not make a concerted effort to regain or build up their deposit accounts by paying interest on deposits, but tried to relieve the situation by securing regulation of trust companies. Another complaint which came from the banks was that the trust companies were not required to maintain a reserve to secure themselves against stress of hard times or panic. As was 74. House of Hambleton and Company of Baltimore, Maryland, Bankers Magazine, May, 1891, vol. XLV, pp. 852-3. 75. Bolles, Albert S., "Notes on Banking in New York City," Bankers Magazine, April, 1889, vol. XLIII, pp. 721-9.9? pointed oul;76 they carried very little ca8h on hand but kept it in the banks on which they collected interest. Not only that, but the clearing of checks was done through the banks which were members of the Clearing Houses of the various cities, at no charge whatsoever to the trust companies. Thus, almost the entire burden of their commercial bank activities was shifted onto the banks. This, together with the fact that they were taking deposits from the banks, was certainly not a source of comfort to the banks.77 76. Supra, p. 86. 77. It is even claimed that "the trust companies have not only encroached upon the legitimate deposit line of the banks by millions of dollars, owing to the liberal charters granted to them, but they turn to the banks and ask that a large share of their business be transacted for them at a margin of profit to the banks so small as to mean no profit at all for at least a portion of the time. The banks are expected to pay the trust companies 2 or 2^ per cent interest upon daily balances; make all their city clearings, not only checks drawn upon other national banks but checks upon trust companies as well; collect all their out-of-town items without charge; furnish necessary currency and exchange; allow the trust companies to roll up enormous balances when money was a drug, upon which interest must be paid and which the bank cannot handle to advantage any better than the trust companies; and then again, when money becomes active and rates remunerative, to cut down their balance to the lowest figure possible, and in addition, in times of real stringency in some instances the banks are further asked to provide, in the shape of loans to the trust companies, even the small percentage of reserve carried. It is also an unpleasant fact that a considerable number of our banks have hardly earned a dividend of late, and others have drawn upon undivided profits to pay dividends, and that with few exceptions there has been a heavy decline in the price of bank stocks.—Editorial, "The Banks and the Trust Companies," Bankers Magazine, September, 1895, vol. LI, pp. 328.98 Another controversy which was taking form at the same time as the ones previously mentioned was over supervision. The earliest supervision of trust companies was entrusted to the probate courts, which supervised the administration of testamentary and court trusts as they do today.8ome reported to the Supreme Court of the State or other designated official. Generally speaking, however, trust companies escaped State banking supervision until late in the last quarter of the century. (See Table VIJ3^ on page 282-fbr comparative statement of trust companies and state banks, with reference to year of supervision and reports.) The appeal from State banking departments and banks for some sort of supervision and regulation appears early. It was a subject for petition on the part of bankers conventions and a subject for comment in the financial news items of the times. As early as 1875, the following article appeared calling attention 79 to the need for regulation: "These bodies have some of them obtained at various times such exceptional and mischievous privileges that all special legislation about them is looked upon with jealousy. It is much to be regretted that the Legislature has not long ago adopted the policy of enacting a general law for the regulation of these valuable and influential institutions. This has often been proposed and it will at no very distant day no doubt be done." The situation is brought out clearly by the Superintendent of Banks of New York in his reports for 1884 and 1885. He says: 78. Smith, J.G., "The Development of Trust Companies in the United States," p. 335. 79. Commercial and Financial Chronicle, June 5, 1875, vol. XX, p. 531-2.99 "The incorporating of these companies by special charter®^ has resulted in establishing a class of financial institutions in this State whose powers, rights, and liabilities are not of a uniform character, while all are, to a limited extent, made subject to a general law (Laws of New York, 1882, chpat. 409) .... "The original purpose in chartering trust companies was to furnish depositories for trust funds. Today such deposits constitute but a small percentage of those confided to their care. It was later said, "under existing circumstances any advantages of the National banking system were with the depositor, who has 81 the security of departmental supervision and examination. Again, "if savings banks are legally controlled, then there is no reason why these trust companies should not be; if national banks must keep reserves, then the trust companies should be compelled to." The controversy took a very active form in Minnesota where long and costly litigation followed.®3 The Panic of 1873 emphasized the need for regulation and supervision especially in the larger centers. The New York Legislature in 1874 required reports to be made by the trust companies to the State Banking Department. Connecticut had required reports since 1872. Following the example of these two 80. Laws of New York, 1882, Art. 8, 8ec. 4, says: "This Legislature shall have no power to pass any act granting any special charters for banking purposes, but corporations for such purposes may be formed under general laws. 81. Bankers Magazine, May, 1891, vol. XLV, pp. 852-3. 82. Ibid., Jude,1189?, pp. 931-2. 83. Ibid., November, 1893, vol. XLVIII, pp. 392-3.100 States, the other states passed supervisory laws, although at very irregular intervals. Four states required examinations in the seventies, 13 in the eighties, 15 in the nineties, and 16 since 84 1900. The pressure exerted by the hanks in Hew York was enough to get an act passed in the Legislature known as "The 85 Trust Companies Act." The Act was passed in 1887, which provided a general law for the organization of trust companies, giving general powers to trust companies which had formerly been given by a long series of special enactments. Instead of limiting the number of trust companies, the general incorporation act seemed to have the opposite effect. Within the first five years 13 new 86 companies were formed under the act. In 1892 in the revision of the corporation laws of the State of New York, the provisions of the Act of 1887, with some changes, were incorporated in the new banking laws, and by later amendments the trust companies were placed upon the same equality with the state and national banks in respect to loans and discounts. The growth of trust companies in 87 New Yor£ immediately following was remarkable. Another way was tried in Massachusetts to discourage the orgnization of trust companies, which was an answer to the demands for regulation and supervision. The Legislature passed a general incorporation and 84* See Table YDI, p.222. Also, Cator, George, "Trust Companies in She Bhitid States," Appendix III. Stephenson, E.J., "Early History and Growth of Trust Companies," Trust Companies, August, 1904, vol. I, pp. 620—5. 85. Laws of New York, 1887, Chapt. 546. The law allowed trust companies to do everything but issue. 86. Laws of New York, 1892, chapt. 687. 87. From 1892 to November, 1899, 22 new companies began business101 regulatory Act in 1888®8 in which it was provided that the minimum capital should be $500,000 instead of $100,000 for trust companies. The fact that State supervision was being introduced and trust companies were being required to report along with banks to the Superintendent of Banking did not solve the problem. Trust companies still enjoyed privileges not accorded to the state banks nor the national banks, with respect to making loans upon real estate, reserve requirements, and in matters of taxation. Attempts were made in some states to pass laws which would prevent trust companies from engaging in banking business, but the interpretation of these laws in the various Courts of the States practically destroyed the efficacy of the laws. Such was the case in Missouri where an effort was made to take away their charters, on the ground that they were receiving general deposits on demand and paying them out on the check of the depositor, thereby establishing the relation of debtor and creditor between such companies and depositors. It of which 11 were organized after January 1, 1898. Fifty-two companies reported to the Superintendent of Banks on July 1, 1899; of the fifty-two in business twenty-nine were in Hew York City. In the quarter century from Jiy, 1874, to July, 1899, the number of trust companies had increased by 43 and their resources increased from $57,000,000 to $722,000,000. Within the same period 215 state banks were organized, 88 withdrew through voluntary liquidation, failure, or transfer to the National system; the total number increased from 81 to 208, and their gross assets from $108,000,000 to $381,000,000. Their assets were doubled in 1899, tripled in 1898, multiplied by 3i in 1899. The assets of the trust companies in 1874 were doubled in 1882, tripled in 1886, quadrupled in 1889, grew to be five fold in 1892, six fold in 1895, seven fold in 1898, and twelve fold in 1899, Of their earnings in 1898 they distributed less than one fifth to their share-holders in dividends, paid more than one third to their depositors in interest, and carried nearly $6,000,000 ot surplus. During this time only three Banks as having | ^§^s==is=£=Miili==MM=Jis=M^fs=^iiiisii£2ssJ£ssss==sssss=ss===s=ss=iss=ss=s===ss=ss]02 was contended that the trust company could not receive money in exchange for its credit in the way a hank does—that it had no authority to operate a general deposit account and receive money without paying interest on it. The Supreme Court of Missouri decided that a trust company had no legal power to take deposits subject to check, and by so doing it violated its charter. This activity, according to the court, did not make the company a v v 89 bank. The controversy between the bankB and trust companies reached a critical stage in November, 1899, when the New York Clearing House Committee passed a set of rules placing trust companies on the same basis with non-member banks in relation to 90 cn the Clearing House. The rules adopted are as follows:“ 1. No trust company shall be permitted to clear through any member or non-member of this association, unless such trust company shall have been in actual operation for at least one year at the time of making the application. 2. No trust company shall be cleared by any bank or trust company, member of this association, until it shall have been examined by the clearing house committee or some other committee of the association duly appointed for such purpose. 89. Missouri Supreme Court Decision, June 14, 1898. The State ex informations Crow, Attorney General vs. Lincoln Trust Company, 144 Mo., 562. Bankers Magazine, 1895, vol. L, pp. 60, 200. Also Banking Law Journal, vol. XXX, p. 697. 90. It will be recalled that the clearing of trust company checks was done through the banks in which they kept their deposits, which were members of the Clearing House Association. Supra, p. 97. 91. Bankers Magazine, November, 1899, vol. LIX, p. 777. Commercial and Financial Chronicle, November 11, 1899, vol. LXIX, p. 991.103 3. Every trust company clearing through a member of this association or which may hereafter be permitted to clear through such member, shall furnish a weekly statement of its condition to the manager of this association, in the same manner as weekly statements of non-member banks clearing through this association are now rendered. Such statement shall include: Capital Net profits Average amount of loans and discounts and investments Average amount of specie Average amount of legal-tender notes and bank note s Average amount on deposit with other New York city and Brooklyn banks and trust companies Average amount of net deposits This marked the beginning of a long and bitter controversy between these two types of institutions which lasted 93 nearly 10 years. The weakness of the whole scheme of banking laws and regulation is seen from the fact that during a period of time covering more than twenty-five years trust companies had been engaged in commercial banking to a greater or less extent, yet without being legally required to keep any cash reserves. It was seen from Graph Y on page90bthat the actual cash the trust companies carried was very small, averaging 5.8 per cent for over a fifty year period. Thus the action of the Clearing House did not seem an unfair move against trust companies, but a means of relieving a positive danger in the system, since it appeared that no relief was forthcoming from the State Legislature. Such was the motive which prompted the enactment of a rule in 1903 by the Clearing House of New York requiring a cash reserve, 9ü. Notably, The Title Guaranty and Trust Company, and The Van Norden Trust Company.104 "claiming that its action was prompted not by reason of competition but because they wanted to preserve the stability of the 33 metropolis from a financial point of view." Much discussion in financial circles followed this ruling, from which it appeared that there was a considerable amount of difference of opinion among the companies affected, some 94 companies, taking the position that the ruling was just and necessary, and announcing that they had provided, of their own accord, for reserves approximating 15 per cent as required by state banks. Generally the trust companies replied that the deposits they had in the banks amounting to nearly $80,000,000 95 constituted a. sufficient reserve and if they withdrew them there would be a panic in the money market. Furthermore, the trust companies claimed that their turnover in deposits was much less than the turnover in deposits of commercial banks, hence they should not be required to keep such large reserves as commercial banks. This contention had considerable truth in it; deposits in the Clearing House Banks at the end of 1906 amounted to 93. In 1901 the actual cash holdings of the Hew York trust companies footed up only 1-| per cent of all demand deposits or 2 3/8 per cent of all except such as classified as "trust deposits" and the ratio was not greatly changed up to 1906. Annual Report of Hew York Superintendent of Banking for 1906. 92. As may be expected, the provisions of the Rules of the Hew York Clearing House Committee did not amount to anything. They made no attempt to correct the more serious matters of reserves, supervision, eto. 95. The so-called reserves of the trust companies were not cash at all; in the hands of the banks they became liabilities, protected like other city bank deposits only by 25 per cent reserve in cash. It was an inverted pyramid.105 96 |977,000,000 and the clearances amounted to $93,823,060. The deposits of the trust companies of Greater New York amounted to $926,000,000 and their clearings amounted to $6,869,000. One point seemed to he agreed upon, viz., that there should he a difference between active and inactive deposits or accounts subject to check at sight and those designated &6 time deposits or trust fund deposits. The decision of the Clearing House Committee was announced February 11, 1903, and definitely required all trust companies clearing through members of the association "to keep a reserve of 5 per cent cash by June 1, 1903, of per cent by February 1, 1904, and such amount as shall from time to time be fixed by the Clearing House Committee, but not less than 10 per 97 cent nor more than 15 per cent after June 1, 1904." It was at once apparent that many of the larger companies would not meet these requirements and would withdraw from the Clearing House. For a time there seemed a chance that the trust companies would form a clearing association of their own; however, this idea never materialized. When the first provision of the rule went into effect on June 1, 1903, there were 17 trust companies still in the Clearing House Association, who held in 96. In 1902 the deposits of trust companies of New York amounted to $741,064,260. and the deposits of the Clearing House banks amounted to $944,793,373, yet the clearings for trust companies amounted to only 6 per cent of the total clearings of both banks and trust companies. 97. Perine, E.T., "The 8tory of Trust Companies," p. 293. Judd, Orin R., "The New York Trust Company Reserve Law," Trust Companies, January, 1907, vol. IV, pp. 2-3. Bankers Magazine, March, 1903, vol. LXVI, p. 395. Earle, H.M., "Relvew of the Cash Reserve Question," Trust Companies, May, 1904, vol. I, pp. 289-9.106 their vault8 as a 5 per cent cash reserve, $5,266,450. On February 1, 1904, the date when the 7|- per cent reserve requirement became effective, two or three additional companies withdrew rather than carry such a "burdensome reserve." On June 1,- 1904, when the full 10 per cent cash reserve was required, so many had withdrawn that there remained only two trust companies out of the 27 which had originally affiliated with the Association. &8 The Clearing House action had accomplished nothing; for about two years the trust companies were allowed to shape their own course, until the matter was taken.up by the New York 99 Superintendent of Banking, and upon his recommendation a trust company reserve law was passed. The law was passed on April 27, 1906, requiring trust companies to maintain a reserve against 100 aggregate deposits, as follows: 1. All trust companies in cities of more than 800,000 were required to keep 15 per cent reserves, at least a third of which must be cash in their own vaults. 2. In cities less than 800,000 a reserve of 10 per cent was required, one-third of which was to be cash in vault. 3. Upon the passage of the act trust companies were to create two-fifths of this reserve, and one-fifth each on July 1, 1906, October 1, 1906, and January 1, 1907. An examination of this law reveals certain peculiarities; in the first place the provisions of the law amount to the fact that trust companies were required to keep a larger reserve 98. Annual Report of Superintendent of Banks, New York, 1905, p. 28. 99. Bankers Magazine, April, 1904, vol. LXVIII, p. 264. 100. Laws of New York, 1906, chapt. 337.107 than the state hanks. The percentage (15 per cent ) is no higher than required of state hanks, hut the per cent reserve is kept against the aggregate deposits which included not only commercial deposits which they may have had hut their time deposits and trust deposits, the turnover of which was very slow. The reserve requirements of state hanks was 15 per cent against deposits, practically all of which were demand deposits and more active in rate of turnover than trust company deposits. This law, in effect, amounted to a change in the entire reserve framework of all hanks; it amounted to the withdrawal of reserves from a system of demand credit already in existence and in operation and placing them in a system to support time and trust deposits which played no part, or at least a very small part, in the regulation of commercial credit. The reserve situation, long before the passage of the trust company law of 1906, was such that the New York City hanks tended to he the reserve center for the country. The whole scheme of the credit structure had heen huilt up on the belief that the large New York hanks would serve as central reserve hanks, which, in case of emergency, would he able to meet any demand. In fact the whole of business confidence appears to have heen huilt up on such a belief, as a result of many years of experience. So, when the trust companies, who were large depositors'^ in the New York hanks, began to withdraw their 101. The New York City hanks carried the deposits of trust companies just as they would carry the account of large private depositors, making no special provisions for them.108 lawful money to create their own reserves, it reduced very materially the reserve strength of the New York central reserve banks, thereby to a certain extent, decentralizing the reserve strength of New York. The immediate result of this contraction was the "rich man’s panic'’ of the spring of 1907. The effects 103 showed up on the stock market which suffered a remarkable fall. The period of financial readjustment required many funds and a resulting decrease in the margin on collateral on commercial loans due to the decline in the stock market and the fall in prices and a general tightening in the money situation. About this time demands were coming into New York from throughout the country for funds for purposes of moving amd marketing crops. The demand could not be met by New York, for all elasticity was gone out of the system. The drain from the banks for the trust companies and also from the outside was too much, and the Panic of 1907 was precipitated. The Knickerbocker Trust Company was the first to suspend and closed its doors on October 32, 1907 after paying out $8,000,000 cash to its depositors. On October 25 the Trust Company of American paid out $13,000,000 and on the following day 102. See Appendix A, p. 219, for change in stock quotations of trust companies resulting from the Panic. On the stock market demand loans went up to 125 per cent on October 24, 1907. Noyes, JA.D., "Forty Years of American Finance," p. 372. 103. The reserve of the Knickerbocker Trust Company on August 22 was $4,745,000, a little more than any other trust company in the city and much more than carried by most of them. (Last report of Superintendent of Banking of New York before the panic came.)109 $9,000,000. Banks as well as trustcompanies closed their doors and it was only after relief came from the United States Treasury 104 and the J. P. Morgan and Company that confidence was restored. The reserve law of July 1, 1906, when applied meant the withdrawal of considerably over $80,000,000 of funds from the various New York City banks, to create the required reserve; the percentage required and the amount of cash is as follows! Reserve Requirements and Amount in Dollars Required to Meet the Requirements under Law of July 1, 1906* Reserves for Trust Companies Percentage of Reserve Percentage of Reserve: Required Prior to Required After July 1. 1908_________February 1. 1909 Location of Trust Company Tot- fcl ■ CashJ L Deposit2 Bonds Tot- al Cash De- posit Bonds In Manhattan 15 5 5 5 15 15 0 0 Other boroughs in Greater New York 15 5 5 5 15 10 5 5 Other boroughs in Greater New York Having Branches in Manhattan 15 5 5 5 15 15 0 0 Elsewhere 10 3 4 3 10 5 5 0 Amount of Cash Required to Meet the Reserves of the Law of 1906 Cash in Sasft in.yftult Reserve Depositaries Trust Companies in Manhattan. .#73,874,000 ................... Trust Companies in Brooklyn . . 2,588,000 ................... Trust Companies elsewhere . . . 2.618.000 $ 1. 309.000 Total increase . . . .17^080^000 IT^OMOO Total, both..........$80,389,000 1. Gash in vault. 2. Deposited with reserve agents. ♦Annual Report of Superintendent of Banking, December, 1908. 104. It has been said that not a cent was lost to depositors as a result of failures of trust companies. After the panic was over, they either reopeded or liquidated without a loss to depositors.110 The majority of the reserve strength of the hanks was centered in 105 six of the largest national hanks, viz., (l) City National Bank, (2) Commercial National Bank, (3) First National Bank, (4) Park National Bank, (5) Hanover National Bank, (6) Chase National Bank. When the calls began coming in for cash from the trust companies, these six hanks had the burden to hear, which, in turn, was a burden on the smaller hanks which carried deposits in the "big six." As the calls were coming in for cash, the reserves of all hanks began to show a marked falling off until the six hanks on October 19, 1907, held a reserve of |139,700,000, which by October 26 had decreased to $132,700,000, while the other clearing house banks held only $117,200,000. This makes a reserve , 106 of $256,000,000 for all banks on October 19, 1907; the rate at which it depleted is shown by the weekly statements as follows: October 19, 1907 . $256,000,000 November 30, 1907 . $217,800,000 October 26, 1907 . 254,700,000 December 7, 1907 . 222,500,000 November 2, 1907 . 224,100,000 December 14, 1907 . 226,600,000 November 9, 1907 . 219,800,000 December 21, 1907 . 233,100,000 November 16, 1907 . 218,700,000 December 28, 1907 . 242,600,000 November 25, 1907 . 215,900,000 It is seen from the table that the reserve strength of New York banks declined very rapidly. On the date of November 2, 1907 when the reserves were $224,000,000, there was a deficit of $38,000,000 105. These six banks had more than 60 per cent of the total reserve. Sprague, O.M.W.,"HiBtorv of Crises under the National Banking Sys-1) Sbh&I» s Document o38^ p # 833« 106. The status of reserve strength of New York banks shows that the national banks of the city held as cash reserve $256,000,000 at the end of 1905; by September 4, 1906, it had decreased to $201,500,000. Report of the United States Comptroller, 1910.Ill which by November 23 had reached $54,103,000, and the reserves of 108 all banks being $215,900,000 which was the lowest for all time. Hence it seems logical to conclude that the trust company reserve law of 1906 had a great deal to do with bringing 109 on the panic of the following year. It is claimed that this law "did much to drive trust companies of New York into commercial banking business." The Trust Company Reserve law was amended early in 1908 requiring trust companies to keep reserves of actual 110 cash in vault of 15 per cent of deposits, exclusive of: 1. Moneys held in trust not payable under the condition of the trust within 30 days. 2. Time deposits not payable within 30 days. 3. Deposits secured by outstanding unmatured bonds issued by New York State. The fact that no time was lost in changing the reserve requirements for trust companies would further indicate that the Law of 1906 may have been held partly to blame for the Panic of 190?. 10?• This deficit was made up by shifting of funds from the United States Treasury to stop any further decrease in the New York bank reserves. 108. Of course, there were other influences at work to cause contraction of the reserve strength of the New York City banks; it is not intended to treat of them in this connection. For other contributory causes to the Panic of 1907, see: Sprague, O.M.W., "History of Crises under the National Banking System," National Monetary Commission Publication, Senate Document No. 538, 1910. Noyes, A.D., "Forty Years of American Finance" Scroggs, W.O., "A Century of Banking Progress" Lanier, H.W., "A Century of Banking in New York, 1822-1922" 109. Smith, Jas. G., "Growth and Development of Trust Companies in the United States,"p. 348. 110. Laws of New York, 1908, chapt. 152 (July 1, 1908, date when law went into effect).112 Thus, a degree of relief was given the trust companies companies, and they were brought on a par with state banks in their reserve requirements. Business of the trust companies continued to increase, and more and more difficult became the problem of clearing. In 1909 the trust companies were again seriously con- 111 sidering the formation of a "bank fox trust companies," which would belong to the Clearing House Association and created to take care of their checks. However, nothing came of this for in May, 1911, all contentions of former years seem to have been forgotten, and the trust companies were admitted to full membership in the 112 Clearing House Association. It might be inferred from the foregoing discussion that the difficulty with reserve requirements in Hew York was the only place where such claimed any attention. Hew York was the storm center, for it was there that the largest companies were found, and the matter of setting aside a percentage of hitherto active funds, meant a great deal more than a similar action in most any other place. However, there was a similar movement going on in many states besides Hew York, and reserve legislation had been in existence in some of these states several years before the trouble arose there. It will be seen from the following that several 111. For references on the proposed bank for trust companies, see; Bankers Magazine, i910, ¥01, LXXX, p. 901. Ibid., vol. LXXXI, pp. 78-80. Ibid., vol. LXXXIII, pp. 181, 599. Ibid., vol. LXXXIV, pg. 5-9, 163. Ibid., vol. LXXXIV, p. 893. 112. Bankers Magazine, June, 1911, vol. LXXXII, pp. 714-5. Trust Companies, May, 1911, vol. XII, pp. 326-31.113 States required trust companies to carry reserves as large as were required by State banks, while in a number of states the reserve requirements are identically the same for both classes of institutions. The following is a partial list of states and their 113 reserves as of January 1, 1908. Alabama California % 3 cash cash 15 per cent 2/5 in cabh 20 per cent in cities over 200,000 in cash 15 per cent in smaller cities ^ cash Connecticut (1902) 15 per cent 4/5 cash Georgia 25 per cent Idaho 15 per cent £ cash Kansas (1901) 25 per cent of demand deposits 10 per cent of time deposits Louisiana 28 per cent 8 per cent in cash Maine (1903) 15 per cent Massachusetts (1902) 15 per cent Michigan (1906) 20 per cent Missouri 15 per cent Montana 15 per cent New Jersey (1903) 15 per cent 1/5 in cash in cities of over 800,000 10 per cent 3/10 in cash in smaller places 15 per cent 15 per cent 15 per cent 15 per cent of demand and 10 per cent of time deposits in cities less than 50,000 25 per cent of demand and 10 per cent of time deposits elsewhere l/3 in cash Pennsylvania (1907) 15 per cent of demand deposits and per cent of time deposits 25 per cent of demand deposits and 10 per cent of time deposits 25 per cent 10 per cent in cash 20 per cent 15 per cent 2/5 cash 25 per cent New Mexico North Carolina Ohio Oregon 2/5 in cash 2/5 in cash South Dakota Texas Washington West Virginia Wyoming 113. Compiled from the laws of the various states and from Sherwood, Grace M., "Summary of the General Banking Laws of the Commercial States, 1908, published by the Legislative Reference Bureau of Rhode Island State Library. Also Bankers Magazine, March, 1908, voi. LXXVI, pp. 340-1.114 The next thing of significance in the activities of trust companies following the controversies just mentioned, did not come from them as a class of "banking institutions nor from the hanks as competitors, but from the passage of the Federal Reserve Law. The Federal Reserve Act, by 8ec. 11-k, made all the activities of the institutions under consideration available to national banks. Thus the distinction between the two types of institutions could now, both legally and theoretically, cease to exist. The details of the working of the fiduciary clause of the Federal Reserve Act and the extent to which it has been assumed, come in a later chapter. From the foregoing it is obvious that the trust companies have had a checkered career. They grew, made profits, and expanded but not without difficulty. It is also obvious that this growth came pretty largely from violation of original charter grants, whioh seem never to have been called into question. It is clear that they were serving an economic need which was not being met by other institutions, or else there would have been no trust companies. The fact that the growth was phenomenal, mould indicate that there was a place into which they readily adjusted themselves and their adaptation was far in advance of any legal safeguards. This, of course, was not the fault of the institution, but rather a weakness of the political system. Their growth was no doubt looked upon with considerable envy by the chartered banks, which were not only aware of the competition but powerless to change their own status quo in order to compete on an equal basis. The trust companies obviously followed a policy of opportunism and made no apologies for their actions. As long as such a policy obtained, and as long as the115 ] laws of banking, taxation, and supervision by the state remained ineffective and obsolete on the statute books, any institution would grow. This time it was the trust company which was so favorably situated.CHAPTER IV THE LEGAL STATUS OF TRUST COMPANIES117 CHAPTER 17 THE LEGAL STATUS OF TRUST COMPANIES The trust company was originally a body created by a X g special charter grant from the legislature. It «as pointed out that fiduciary service was a part of the business of life and fire insurance of the early companies. About 1880 the trust company passed through a period of interesting legal development. In the following pages, the trust companies are studied legally from both state statutes and court interpretations. Certain of the legal points involving both definition of terms and interpretation of the activities are pointed out. Toward the end of the chapter, the treatment deals only with the present legal statue of trust companies. The first problem to arise is: What 1b a trust company? With this particular type of institution, as with many others, there have been many and varied controversies over the title, as well as the business both express and implied, which might be undertaken by it. In this country the trust company is not so restricted in its meaning as in England, where the fiduciary 1. Suoh was the case with the four oldest trust companies, viz.: The Farmers Loan and Trust Company (lew York), Laws of lew York, 1838, chapt. SO. The New York Life Insurance and Trust Company, Laws of New York, 1830, chapt. 75. Pennsylvania Company for Insurance on Lives and Granting Annuities (Philadelphia), Laws of Pennsylvania, 1812, chapt. 64. Girard Life Insurance and Trust Company (Philadelphia), Laws of Pennsylvania, 1836, Act, 41. 3. Supra, chapt. I118 company is oalled a "Trusts« Company," and Is limited in the scope of its operations.3 4 5 6 But in this country the phrase "trust oompany" was never so confined. From the standpoint of the variety of transactions in which that class of corporations engage, "trust companies might be regarded as nomen generalissimum for financial and promoting companies." The common usage and the general understanding of the term did not limit the fiduciary corporation solely to the accepting and executing of trusts, but it had other corporate powers as well. Thus it was pointed out in a case in lev York that "a trust company, when so used in this chapter, is defined .... to mean any domestic corporation formed for the purpose of taking, accepting, and executing such trusts as may be lawfully committed to it and aotlng as trustee in the cases prescribed by the law, and receiving deposits of money and other personal property and issuing its obligations therefor, and of loaning money on real and personal property." Hence, the policy of Hew York was not to limit the companies to purely trust business. In a Hew York Court of Appeals case it was pointed out that statutory "trust companies exercise the powers conferred upon g individual banks and bankers." Thus, it appears that a trust 3. In England a Trustee Company is defined to be "A company in- corporated by the statutes and authorized by special act to undertake the duties of executors, administrators, and trustees, for pecuniary reward." Perpetual Executors, ect. Ass'n. vs. 8wan. U898), A.O. 763, 764, 767, L.J.P.O. 14l. 79 L.T.R.H.S. 148. 14 L.T.R. 587. Trust companies are also called "Trustee Companies" in Australia and Hew Zealand. 4. 8tate vs. Central Trust Company (1907), 106 Md. 268. 67 Atl. 267. 5. Venner vs. Farmers Loan and Trust Oompany (1900), H.Y. App. Div. 371, 373. 66 H.Y. 8upp. 773. 6. Jenkins vs. Heff. (1900), H.Y. 330 , 330 , 57 H.E. 408.120 company may generally be regarded as a corporation, created by the state, and thereby empowered to perform any fiduciary services which it would be lawful for a natural person to perform, together with the doing of a general banking business. Recent legal enactments have tended to make banks and trust companies the same; this is discussed at length in later pages of this chapter. The relationship of debtor and creditor in the business of trust companies, similar to that existing in banks, has been ? recognized at least since 1887. The courts reoognized that a trust company, like a bank, may make money by investing and loaning 8 the funds deposited with it and any other funds belonging to it. Hence the question arose of what constituted banking business by trust companies. It will be seen from the following cases and decisions, that the attitude of the courts was very liberal; it appears that the oourts were reluctant to classify a trust company as a bank even though the points of difference were very few. 9 It was held in the United States Supreme Oourt that a trust company was not doing a "banking * business where its "only business has been and is the investing of its own capital in mortgage securities on real estate, and selling such mortgage securities with the company's guaranty." In this case the oourt 7. Hercantile National Bank vs. New York (1887), 121 U.8. 138. 30 Law Ed. 895. 8. Ibld. 9. Seiden vs. Equitable Trust Oompany (1877), 94 U.S. 419.131 eald: "In no proper sense can It be understood that one reoeives his own stocks and bonds, or bills, or notes, for discount or sale* He receives the bonds, bills or notes belonging to him, as evidences of debt, though he may sell them afterwards* lobody would understand that to be banking business. But when a corporation or natural person received from another person, for discount, bills of exchange or promissory notes belonging to the other, he is aoting as a banker; and when a customer brings bonds, bullion or stocks for sale, and they are received for the purpose for whioh they are brought, that is, to be sold, the case is presented which we think was contemplated by the statute. In common understanding, he who receives goods for sale is one who receives them as an agent for a principal who is the owner* He is not one who buys and sells them for his own account* The Equitable Trust Company lent it8 own money, taking bonds and mortgages therefor* Those bonds it sold with a guaranty. It sold its own property, not that received from others for sale* 8uch a business, in our opinion, did not constitute the corporation a banker, as defined by revenue laws." A case appeared in the Missouri courts where it was held that:*'** "An examination of the authorities will, we think, demonstrate that the mere fact that a corporation is authorized to exercise some of the functions of a bank does not, in law and in fact, create it a bank." A case is then oited by the court of a federal decision'*'*' wherein an express company having many banking powers was held technically not to be a bank* The exercise of functions including a savings department, in which a pass book and other equipment was used similar to that used by a savings bank, was regarded as a lawful 10. 8tate vs. Held (1894), 135 Mo. 43, 38 8.W. 173. Dunn vs. State (1913), 13 Ga. App. 361, 79 S.E. 170. 11. Wells Fargo and Company vs. Worthern Pacific Railway Company (1884), 23 Fed. 469.las exercise of detail in the banking functions of a trust company. The formation of a set of rules whereby an ordinary deposit was made subject to withdrawal on certain conditions, with addition of interest, was merely "a reasonable and.prudential agreement as „12 the basis of its relations with the depositor.” In a similar manner the Issuance of certificates of deposit is but a detail 13 incident to a trust company's general power to receive deposits. These operations which are essential parts of the business of a bank do not seem to be regarded as banking activities or a part of banking business, when done by trust companies. It appears, therefore, that trust companies were not regarded as doing a banking business unless they were capable of issuing notes and 14 _ is supplying commercial credit, or as was pointed out in Ohapterlll, the trust companies were not regarded as doing a banking business, because the banks could not do the same things as trust companies. 12. People vs. Binghampton Trust Company (1893), 139 N.T. 185. 34 I.C. 898. 13. Bank of Saginaw vs. Title and Trust Company (1900), 105 Fed. 491. A seemingly contradictory decision was under a statute specifically prohibiting all corporations except banks from issuing evidences of debt upon leans. Hew Tork Life Insurance and Trust Company vs. Beebe (1852), 7 N.T. (3 Seld.) 364. Sears, Trust Company Law, p. 52. 14. This distinction seems to have prevailed from the time trust companies began commercial banking business. It would not hold after about 1905-1910 when state laws were changed which made trust companies amenable to state banking laws. 15. Supra, p. 85.133 However, it appears that many of the legal questions applicable to trust companies are the same as those pertaining to banks* Certain exceptions will be brought out later in this chapter and discussed in connection with the states where the exceptions exist. The trust company, like the state bank, is a creature of the state uhder its own laws. It is a corporation, and as a corporation, it enjoys the general powers accorded to corporations. It is capable of sueing and being sued, and is granted permanency by succession of members. This does not mean that the trust company has a perpetual existence, for most state statutes contain 16 provisions against the granting of perpetual charters. There is no reason, however, why a charter may not be renewed, provided the trust oompany conforms to the laws of the state, and does not perform ultra vires acts. 8ince the trust company originally was not included in the general corporation acts of the states, it was necessary that 17 it be created by a special act, which is a part of the prerogatives of State sovereignty.*® 16. It will be recalled that this was not the case in the charter grant of the Ohio Life Insurance and Trust Oompany, whioh was granted a perpetual charter. 8upra, chapt. I, p. 3,4, 17. For an example of creation of a trust oompany by special act, see pp. 33. 18. The Federal Government has power to create corporations, public or private "whenever they become an appropriate means of exercising any of the constitutional powers of the ¡general government, or of facilitating its lawful operations in the 8tates or Territories." This principle was applied by the Federal Government in the creation of the First and Second United 8tates Banks, the lational and Federal Beserve Banks. Also in the case of the creation of Freedman4s Savings and Trust Company. Suppa, p. Potter, Law of Corporations, p. 7.134 In some states the Incorporation of trust companies Is provided for under the general incorporation laws of the state; in others it is provided for by a special "Trust Company Law." However, at the present time, all sates have special provisions for general incorporation of trust companies* The states have been slow in enacting suoh legislation, some being within comparatively 19 recent years, as the following tabulation shows* 8tate Tear in which General In- corporation of Trust Com-panies was provided Connecticut 1918 Delaware 1931 Florida 1911 Iowa 1913 Maryland 1910 Mississippi 1906 Nebraska 1911 New Mexico 1915 New Hampshire 1915 Rhode Island 1909 South Dakota 1911 Virginia 1914 Acts providing for the general incorporation of banks by the various states were enacted on the average of from twenty to thirty years before special incorporation laws were passed to provide for the general incorporation of trust companies*^ One may say, at the present time, the trust companies of the United States are organized under the general banking laws of the States* In fact all the states have very liberal trust company laws. Only three states prohibit trust companies from doing a 31 general banking business; they are Michigan, Kansas, and Nebraska. 19. 8mi^h, J.G. "The Development of Trust Companies in the United 30. Ibid., p. 7. 31. The resources of the trust companies in Kansas, Nebraska, and125 The case of Kansas Is peculiar in that the prohibition is qualified OO in the following terms; the company is entitled: "To receive deposits of money from any bank, savings bank, trust company or from public officer or board subject to check, or from any person, company, corporation or association upon certificates of deposit, and may allow interest on such deposits; to buy and sell foreign and domestic exchange, gold, silver, foreign coin or bullion." The laws of Michigan are emphatic; the trust companies in the state are allowed to do strictly fiduciary business, and are prohibited 23 from doing banking business in the following terms: "But nothing herein contained shall be construed as giving the right to issue bills to circulate as money, or buy or sell bank exchange, or do general banking business.* The laws of Nebraska are equally emphatic; after granting fiduciary 34 powers to corporations, the section concludes as follows: "Hone of the powers hereby granted shall extend to or be construed to authorize any sueh corporation to conduct the business of banking. All of the states permit trust companies to do a savings bank Michigan are listed along with the total banking resources of the other states in the reports that have been used. Their statements show little or no difference from the statements of trust companies in the other states. 32. Kansas Banking Laws, 1927, p. 38. LawB, 1901, ohapt. 407, sec. 2, as amended by Laws of 1903, chapt. 528, sec. 1, as amended by Laws of 1907, chapt. 425, sec. 1, March 31. Kansas Trust Company Law, 1937, sec. 3, pt. 9. 23. Laws relating to Banking, State of Michigan, 1927 edition. (116) Ho# 8052, sec* 9, p# 57# 34.Nebraska Banking Laws, 1925, pp. 66-67. Statutes of Nebraska, 1922, Article XIX, Part III, Sec. 8068, sec. 9.126 business except Kansas, Michigan, Nebraska, New Jersey, and New York* All of the states permit trust companies to discount or purchase commercial paper. There are nineteen states allowing trust companies to guarantee bond issues, and thirty prohibiting the same. Of the nineteen which allow the guaranteeing of bond 25 issues, five are allowed to do so only if authorized by their charter; the others are allowed the privilege under the general banking laws. Likewise, there are nineteen states allowed to issue Title Insurance, and of the nineteen, eight are granted the privilege by charter, the remainder exercising the privilege under 26 the general banking laws* It is evident, therefore, that with three exceptions, trust companies may legally do banking business. Their powers are defined in the banking laws of the states usually under the general banking clause. Examples of this grant are as follows: 27 for instance, South Dakota statutes provide that: ■Such corporations (referring to trust companies) may also do a banking business and in doing such business shall be governed by, and be subject to, all the provisions of the preceeding chapter (chapter on banks and banking) and to any amendments or modifications thereof which may be hereafter adopted." 35. The five states referred to are: Alabama, Delaware, Georgia, Maryland, and New York. 36. Digest of State Regulations as reported by Heads of State Banking Departments. "Trust Sompanies cf the United States," 1938. 37. Laws relating to Banks and Banking, South Dakota, sec. 2, chapt. 355, 1911, No. 9033. _______________________________________________________________127 Likewise, the statutes of Washington read as follows: "Upon the issuance of a certificate of authority to a trust company, the persons named in the articles of incorporation and their successors shall thereupon become a corporation and shall have power: 1, To execute all the powers and possess all the privileges conferred upon banks. In certain others of the states, the law specifically mentions the powers of banking which may be engaged in by trust companies. For example, the statutes of New York provide that every trust company 39 shall have the following powers: Sec. 2. To discount and negotiate promissory notes, draft8, bills of exchange, and other evidences of debt; bujr and sell exchange, coin and bullion; lend money on real or personal securities; and receive deposits of moneys, securities or other personal property from any person or corporation upon such terms as the company shall prescribe. Sec. 9. To purchase, invest in and sell stocks, bills of exchange, bonds and mortgages and other securities; and when moneys or securities for moneys are borrowed or received on deposit, ox for investment, the bonds or obligations of the company may be given therefor, but it shall have no right to issue bills to circulate as money. Likewise, the Trust Oompany Law of the State of Maryland 30 grants banking powers as follows: Ninth. To exercise, by its directors, duly authorized officers or agents, all such powers 28. Banking and Trust Oompany Laws of the State of Washington, sec. 3231 of Remington's Compiled Statutes. Amendments to the Banking Code No. 37. Supplement to Banking and Trust Oompany Laws, p. 9. 29. New York Banking Law, including Amendments to January, 1928. Sec. 185, General powers, art. 2 and art. 9, pp. 115-116. See Appendix I, p; .223 for the section given complete. 30. Laws relating to State Banks, Trust Companies and Savings Institutions in the State of Maryland, 1927; 1910, chapt. 819, sec. 45; 1918, chapt. 33; 1920, chapt. 268, sec. 46, art. 9; 1924, chapt. 430.7a¿/<° ir. (faysfa/ -3/o c Æ fpsqru/r&c/ for /r¿ss/ (fbnyjor/s?S/ny f?i/s / nrss Sfate C/??a//esZ Case /A/e CaA/Za/ xSYoc/t ? oZ Cay/ /er/ S/ocZ reaa/xeZ er/ ZÈ e C/a s/ Cay?/fa/ teSoeS ZZeyi/ZxecZ /s? Zóisss?s cre/cZ C/Z/es tos/ZA c? ÆZsyt/ZcrZ/'os? of1 — 1 So o /OOO /S~0Ó 2000 2x00 ZOOO 0-000 ¿OOO soyoo 20000 2X000 Si.?00o /oayoo /sayo0 S00tOOO os/rroze /?/& Z?as?7ey ^o'ooo /OO $2X000 ?0~0 OOO /00,000 Z/xA'aXSaS Xop oo /öO So o/? o o //? sao A c o ¿/s? Zy jaS/ZA yo/ra/oZ/os? oZ 0 oyoo os az/ÍA x?os> // /a //os? ö/ 4/0.000' Zö SZOooo • S&oxe $ ZST0O0 Zs? 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Z<2 S/ C? /O O, OOO /oo //s’As'srS'À'S/ 2X.0OÖ /OO 2X000 Xoooo /oo.ooo 200,000 //c ■ iSere/cs Z SISÛO /OO ZZeies /Zos??/3 sA/XX 2 STOOP /oo Xa,o 00 /O 0,000 20 0 000 /L/S*t// - SO 0,000 ZZij/y' .CZ /'yes - /oo.ooo /OO /Zeto/ jfaexsse? /ocooo /PÙ // yS ' y f Z.P.Ojooo /Oo /XO.OOO 200,000 Xoe ooo Z/ax/A Cryxte/s? <2 ZSJOOQ /OO 2X000 3c,ooo xo.ooo /oo.ooo /Vos"//? CZerÀ'o ter /oo.aac ¿-o - O A/s? SZS7000 /o a Z?/fZ/>/?os7?sr /OO.OOO S'O _ a/ yTZasZ c . /oo //? 6 Z/os/As 200000 . Zxz.q/2/j. 2X.OOO Ú¿£i ¡ 2X000 3o 00 Zo 20.000 joaote/a/s os? — XOOOO /oo.OOO 2s00.000 Cxs? s?.Jy/aas?/sv /¿?CÖÖC /OO /OO0O0 200.000 200.000 2OO.OOO¡2.00OOO 200000 300,000 - /fAasZé J£jr/as?a/ /OO CeZes s??s/?s>< te" Ayr cz ^/teccs^cte éf^ZZ'Zcte L ^eaZAteZs/jcte/x 2S700O -’S- 1 1 1 1 Coa/A Z7erAofa xo,ooe /oo xo.ooa /oojooo - ~//? c/'Z/'e¿ r-e* 7exxex es /O.OOO /OO /0.000 2X000 telOMúO /OO.OOO 2.00.00 0 Texas olO.ooO S~0 — Cas/ /où 7Z?e Ca¿> /ZaZ SZoo/r Qa/osfaZ excoete* /0, OOO. OOO 200000 /s? 6 ZCo/p/As /00,000 ¿/Zc/Z? 2S70OO /00 .. 1 i .... .;:i . r " 1 r 1 yeseros?/ /00 CrosZ Co/rr. Cresce xa/ l* toc/ei/eJ &re cAcrxZexecZ Ay ty?ec/aZ ¿ep/f/t Zs? oe/X/OoXs/Z/Os? Za ¡as ?//xe Z/cZs, xoZ Ay iZ/xp/x/a ¿-0.000 /a¿> 1 ?VasA/XaZoX S~0,0 0 c /00 Xö.oao /OO.OOO 200,000 /a/psZ iZ/Xer/x/a /€>€>mCO i /00 , ¡///o coûtes? tiropcrt* d~0 CasA yes/ //? Si?c//x/ Z/es 7~Z? & re” serve of 20* is required. Kentucky . 7* demand deposits, 3* total time and savings deposits; and in reserve or central reserve cities under Federal Reserve Act of December, 1913, 12* of demand deposits and 5* total time and savings deposits. Louisiana . 20*, of which ^* cash, on demand deposits Maine is* Two-thirds of reserve may be on deposit; one-third may consist of U.S. or designated state bonds. Maryland .. 15*, demand dep., no cash Massachusetts.. .. *20* in Boston, of which 8* cash; 15* outside of Boston, of whioh 6* cash. One-half of cash and one-third of amount carried in banks may be in bonds of the United States or Commonwealth of Massachusetts at market value. Trust Companies in Boston acting as reserve agents for other Massachusetts Trust Companies must carry one-half or 10* in cash, remainder in balances due from reserve banks. Michigan .. Trust Companies in Michigan are not permitted to do a banking business, although under the supervision of the State Banking Department. They are required to deposit with the State Treasurer approved securities to the amount of 50* of their capital stock (but in no case more than $200,000), as security for their depositors and creditors. A reserve of 20* of matured obligations is required, of which three-fourths may be kept in any bank or trust company approved by the Commissioner of the Banking Department. Minnesota ., Trust Companies receiving deposits required to keep 5* Time Deposits, 12* Demand Deposits (County), 15* Demand Deposits (Reserve City), may accept commercial and savings deposits if so incorporated. Must deposit a guaranty fund with State Treasurer subject to approval of the Commissioner of Banks; 50* of capital up to $200,000, and 25* of capital if above $200,000. .. 15* demand deposits, 7* time and savings deposits; required in cities under 50>000; and 25* of demand and 10* of time and savings deposits required in cities over 50,000. Mississippi.... Mi ssouri .. Reserves vary according to size of city and the Department of business. •Company becoming a member of Federal Reserve System subject to provisions of Federal Reserve Act relative to reserve in substitution of the requirements of the State law concerning reserve. 11401) State Reserve Required by Law Montana........ 10$. All Res. Banks 15# Nevada........... 15#, of which 5# cash New Hampshire.... 15# demand dep., of which 5# cash New Jersey....... 15# demand dep., of which 3# cash* New Mexico....... 12# of demand dep. and of time dep. New York......... Boroughs of Manhattan and Brooklyn 15#* The New York State Law requires in the Boroughs of Manhattan and Brooklyn a reserve of 15#, of which 10# must be in actual cash on hand. Other boroughs of Greater New York, 10#, with ¡4-# cash on hand. Other first and second class cities in the State, 10#, with *4-# cash on hand. Elsewhere in the State, 10#, with 3# cash on hand. The balance of such reserve must be kept in certain selected depositories, approved by the Superintendent of Banks. Any part of the reserves on hand in excess of 3# of deposits may be deposited, subject to call, with a Federal Reserve bank in the district in which such trust company is located. Trust Companies, members of New York Clearing House, are required to carry 15# cash on hand and 10# cash in banks carrying 25# cash reserve in valuts. North Carolina... Same as State and National banks North Dakota..... 10# dem., 7# time. 3/5 with legal depository and 2/5 cash Ohio............. 15# dem., *4# cash, 10# time, 2# cash, no res. on tr. funds Corporations exercising trust powers required to deposit $100,000 in cash or bonds with State Treasurer. The Columbus Clearing House requires that all active members carry a reserve conforming to State and Federal requirements. Oklahoma......... In towns of less than 2,500 population, 15#; in cities of 2,500 population and over, 20#; of which two-thirds must be with approved Bank having $50,000, or upwards of capital. Oregon........... 15# dem., 10# time of which 15# cash, 5# sav- ings of which 50# in cash* Pennsylvania..... 15# demand dep. of which 5# cash, m on time dep.* Philippines...... 15# of which 5# is cash Rhoade Island.... 15#, of which 6# cash South Carolina... None South Dakota..... 17^# Tennessee........ 10# demand deposits and 3# time and savings deposits •Company becoming a member of Federal Reserve System subject to provisions of Federal Reserve Act relative to reserve in substitution of the requirements of the State law concerning reserve.140C State Reserve Required by Law Texas Utah............. Vermont.......... Virginia......... Washington....... West Virginia.... Wisconsin........ Wyoming.......... Capital #25,000 and over, 15$ exchange; less than #25,000, 20$ exchange 15$ on dem*, 10$ on savings 15$ on dem. and 3$ on sav. 10$ on dem., 3$ on savings 15$* 10$ demand, 5$ time 20$ If incorporated under laws of savings deposits required cash and cash and 1913, 10$ of •Company becoming a member of Federal Reserve System subject to provisions of Federal Reserve Act relative to reserve in substitution of the requiremtns of the State law concerning reserve.141 It will be seen from this table that there is a wide range of difference in the requirements which seek to do one thing to establish a safeguard for the protection of the depositors. Thirteen of the states specify a reserve varying from 12 to 20 per cent. The amount of cash required varies from 4 to 8 per cent, 5 per cent being most common. It will also be observed that 23 states make a difference in the requirements for demand deposits and savings deposits, the percentage required for demand deposits varying from 10 to 25 per cent but usually being 15 per cent. The percentage held against savings deposits shows a range from 3 to 10 per cent, ipost of the states requiring 3 per cent. Certain of the states require the same reserve for time deposits as for savings deposits; others require a small reserve against time and savings deposits combined. A few of the states require a percentage to be held against demand deposits, of which a certain per cent shall be cash, which is likewise the case for time deposits. Others require a small reserve to be kept on hand in cash, and allow the remainder to be invested in specified bonds. Some states make an attempt to regulate reserves according to the size 61 of the town or city, or whether or note the city is a reserve or central reserve city, while others have no similar requirements whatsoever. A few of the states simply say that the reserves shall be the same as State and national Banks; others provide that trust companies shall conform to the Federal Reserve Law. 61. This is especially true in Hew York City where the reserves for trust companies are much higher than for the remainder of the state. Supra, p. 140-b.142 From this it will be seen that no such thing as uniformity exists; in fact, there is a wider variation in matters of reserves than in capital stock requirements. One peculiarity exists throughout the whole schedule of reserves. The states which have the most companies and presumably the greatest need for adequate protection, have the least rigid reserve requirements, while states with a half dozen companies have higher percentages in each of the reserve items. For instance, South Dakota with 7 companies requires 17^ per cent reserve; Nevada with 3 companies requires 15 per cent; New Mexico with 1 company requires 13 per cent against demand and time deposits; Wyoming with 5 companies requires 20 per cent and so on. On the other hand, Pennsylvania with 422 companies, requires 15 per cent of which 5 per cent must be cash; Missouri with 103 companies requires a varying reserve depending on the size of the city; New Jersey with 198 companies requires 15 per cent of demand deposits of which 3 per cent is cash; New York with 131 companies requires 15 per cent in Brooklyn and New York City, of which 10 per cent is cash and elsewhere in 63 the state 10 per cent with three per cent cash on hand, and so on. The absolute lack of uniformity can hardly be overemphasized; so unlike are the laws in the 48 states and the District of Columbia, that of the entire number only two are absolutely alike; they are Arizona and Nevada, the two of nearly the least significance. (4) TAXATION. The question of taxation of trust companies always was one of great concern to the legislators. It was complained by the commercial banks that one reason why trust 62. A complete list of the number and resources of trust companies per state is found in Appendix J , p. 224, Table IX.143 companies grew so rapidly was that they were not taxed as were the 83 banks. This argument, of course, was based on the contention banking that trust companies were doing/business, hence deserved the same 64 treatment at the hands of the legislature as the banks. As long as the courts regarded the trust companies as carrying on only the business for which they were originally chartered, there was no action on the part of the legislature. It was not until about 1895 to 1900 that trust companies were made subject to state laws 65 generally. It was seen that in Hew York the question of taxation became quite serious. From the Table II, Appendix K, page 335 it is obvious that the average tax paid by the companies in Hew York was small, and such must have been the case throughout the country where trust companies were either taxed under the general corporation laws or not at all. At the present time, truet companies in every state are subject to taxation under state laws. In matters of taxation as with capital stock and reserve requirements, there is a great lack of uniformity. The digest of laws by states, Appendix K, page 335, definitely emphasizes this. The method of taxation and the number of states using each method is as follows: Method of Taxation Humber pf.. Slates a. Same as state bankB 38 b. 8pecial taxation for trust companies 12 c. Same provisions as corporations generally 4 d. Unclassified _£> 49 63. Supra, p. 67 et seq. 64. Supra, p. 68 et seq. 65. 8upra, p, 73 et seq144 The states in which trust companies are subject to the same laws of taxation as banks are invariably always the states in which trust companies are created under the general banking 66 laws. In each of the older states there is a certain likeness in the laws in this respect—that each state, with but very few exceptions, requires special legislation for trust companies. This is, of course, true in the states where there are no state banks, viz., Massachusetts, New Hampshire, Vermont, and Maine9 and where trust companies are chartered by special legislation or a special board, as in Delaware, Connecticut, and Bhode Island. It appears that the newer states generally are the ones using the same tax scheme as applied to banks. From the digest of state laws it will be seen that all but eight of the states have some kind of franchise 67 tax, the most common is a tax on the net worth of the company based upon the local tax rates; others tax the capital stock only at the rate of a fraction of one per cent—generally 1/5 of 1 per cent or | of 1 per cent. Other states tax the net income; one, the gross earnings; two, the deposits; while one (Illinois) taxes trust companies the same as other corporations at the rate of 1/30 of 1 per cent of the authorized capital stock. (A complete study of the tax laws applicable to trust companies and state banks is to be found in Appendix K , giving also the rates of the franchise tax on trust companies, and the basis for taxing state and national 66. The general banking laws for creation of trust companies generally prevail in all but certain of the New England states. 67. Those states which do not have a franchise tax are: Arizona, Indiana, Louisiana, Montana, New Hampshire, Ohio, Oregon, 8outh Dakota. For complete list see Appendix K, p. 235.145 || banks together with the rate.) Only two states levy a tax on property held in trust, viz«, Massachusetts and Vermont. The fact that so very few states levy a tax on trust property would indicate to a degree that banking is of greater importance than fiduciary business of the so-called trust companies. The situation is different in the District of Columbia from that of the states, for the trust companies there are chartered by the Federal Government, and subject to Federal regulation and supervision. It is difficult to say how much the Federal Reserve Act had to do with taxes levied on trust companies. It certainly had some effect, for many of the states were obliged to change their laws to conform to the Federal Reserve regulations of banks and trust companies. Thus, the situation remains that no general uniformity exists throughout the country in laws of taxation of trust companies. This stands out equally as clear as the lack of uniformity in reserve requirements, and no deductions can be made which are uniformly applicable. The polioy of states regulating the activities of institutions which they have created stands out clearly in laws of taxation. Doubtless the banks, who were the chief advocates of taxation of trust companies comparable to that to which they had to conform, feel a degree of satisfaction in having competitive institutions placed on nearly the same basis of taxation as their own. However, it is difficult to conceive that there could be nearly as many bases of taxation as there are states, and have each one of the systems equally fair and just, when one kind of institution is the subject for taxation in each of the states. Ho doubt, in time, this tax feature will be146 worked out and systematized somewhat after the fasion that the law of incorporation of trust companies has "been worked out. (5) 8UPERVI8I0H. The demand for supervision of trust companies came at a very early date. As early as 1872, Connecticut 68 passed a law containing a measure of supervision. The early legislation in no way regarded trust companies the same as hanks, hut, on the contrary, they were clearly differentiated from hanks. Hence all supervision was done hy the courts, and not hy the hanking departments in the variousgtates where trust companies were to he found. It was not until 1874 that Hew York brought trust 69 companies under the hanking department. State hanks in Hew York had heen required to report to the Superintendent of Banks since a period long before the Civil War, hut curious to note, regular examinations of state banks hy the hanking department were not begun until 1884 or ten years after the law requiring the examination of trust companies had heen passed. Pennsylvania, in 1881, amended the General Corporation Act of 1874 hy which trust companies, which were not even mentioned in the original act, could he established, hut it was not for ten years (1891) that either 70 reports or examinations were required. Illinois passed a 68. Supra, p. 99. Also Bankers Magazine (Hew York), vol. XXVII p. 256; vol. XXVIII, p. i84. 69. The Superintendent of Banking of Hew York State in his report for December, 1873, recommended that trust companies he brought under state supervision. At that time some were under no supervision at all, while others reported either to the State Comptroller, Superintendent of Banks or Judge of the Supreme Court. Cator, Geo., "Trust Companies of the United States,"p. 51. 70. Illinois Revised Statutes 1901, chapt. 32, pp. 129-147.147 General Trust Company Act in 1887, under which "banks and other authorized companies were granted trust powers upon proper deposit of securities with the State Auditor. This law also included provisions for reports and examinations "by the 8tate Banking De-71 partment. Massachusetts passed a law the following year (1888), 73 providing for the incorporation and regulation of trust companies. In the West, Minnesota was the first to provide for supervision. This was in 1883, and this law together with an amendment in 1885 73 made trust companies subject to regulation the same as state banks. These states were the first to recognize the significance of the trust companies and to provide for their control. In 1890 74 not over half a dozen states had any trust company laws; since that time every state has some provision for regulation and super-75 vision. Hot always did the demand for supervision come from the 71. Illinois Revised Statutes, 1901, chapt. 32, pp. 139-147. 73. Laws of Massachusetts, 1888, ohapt. 413. 73. Laws of Minnesota, 1883, chapt. 107. Statutes of 1894, sec. 2841. Maine also made a similar provision in 1883. 74. Stephenson, E.J., “State Regulation and Legislation for Trust Companies," Trust Companies, vol. I, ffännary, 1904, pp. 400-10. 75. The years companies: of greatest activity in State supervision of trust Years Number of states passing laws Number of states requiring reports bv trust requiring regular companies examination bv banking department 1870-76 3 3 1876-81 3 1881-86 4 2 1886-91 10 8 1891-96 10 8 1896-01 3 3 1901-06 9 12 1906-11 — ,.3 7 44 43«n Superintendent of Banks or the Banking Department of the 8tate, or from those who were feeling the competition of trust companies, hut often from the institutions themselves. This seems to have been especially true in the western states where trust companies were 76 not in the public eye as they were in the older eastern states. A3 the trust company has gradually evolved, and defined itself, and as banking activities became the most important function, the legislatures of the states have gradually included the 77 supervision of trust companies under the banking department. There are certain states, however, where a difference exists, which is due to the difference in the laws creating the trust companies. In Illinois a trust company doing a banking business is subject to the same supervision as a state bank, and is further subject to certain supervisions as a trust company. Due to the nature of the This clearly emphasizes that the greater amount of legislation came in the decade from 1885 to 1895, the period when the trust companies were extremely active in developing the general banking business. Figures from U.S. Monetary Commissions Report, Senate Document 569. See Appendix H, Table Fill, for complete table from which above was compiled. 76. An example is found in Wisconsin where the Trust Company Act was framed by the officials of the Savings, Loan and Trust Company of Madison, which was the first trust company in the State. The act was passed in 1891. 77. Examples have been found of trust companies making reports to one or more of the following officials. Auditor of the State, State Treasurer, Bank Commissioner or Commissioners, United States Comptroller, Auditor of Public Accounts, Bank Examiner, Commissioners of Savings Banks, Public Examiner, Secretary of State, Superintendent of Banking, Corporation Commissioner, Inspector of Finance, Commissioner of Insurance, Commissioner of Banking and Insurance.149 78 grant of trust powers to corporations in Illinois, "the State Auditor shall annually, either personally or "by one or more competent persons appointed by him, viBit and examine every such 79 corporation in the State." In the District of Columbia, trust companies are supervised by the Federal Government under the same laws as National banks, besides the trust companies must deposit a specified amount of bonds with the United States Comptroller. In Massachusetts, Vermont, and Maine the trust companies are under the supervision of the Bank Commissioner, and in these states as well as in nearly all the others, an examination by the directors is required at least once and frequently four times per year. Besides this, each state requires that the trust companies present a statement of their condition in at least one newspaper in the town where the company is situated. It may be concluded, therefore, that the present status of supervision of trust companies is as adequate as is possible 78. The Illinois statutes provide that companies in towns of 100,000 inhabitants or more, must deposit with the Auditor of Public Accounts a sum of ♦300 ,000; in towns of less than 100,000 population the sum required is #50,000, of United States or municipal bonds or in mortgages on improved and productive real estate in the State, on lands worth at least twice the amount loaned thereon. Except, when the value of the personal property and cash held by the company exceeds ien times the amount of the deposits, the deposit with the Auditor shall be #500,000 for towns over 100,000 population and #135,000 for towns of less than 100,000 population. Laws of Illinois, "An Act to provide for and regulate Trusts and Trust Companies," approved June 15, 1887, further amended by Act of June 30, 1933, in force July 1, 1933, sec. 6, pp. 7-8, Auditors Edition of Laws. 79. Ibid, p. 8, sec. 13.150 under existing bank laws; since they are creatures of the state they are on the same basis of supervision as state banks. Certain restrictions and regulations seem to be fairly uniform in the banking codes of the various states, which are summarized as follows: 1. The number of natural persons required to incorporate a trust company is restricted. The number varies from five to fifteen persons, the usual number being five or seven. 3. The minimum capital stock requirements varies from $10,000 in Tennessee and Iowa to $1,000,000 in the District of Columbia. The most of the states (14) requiring $50,000 capital. Eleven of the states require $100,000 and twelve require $35,000 capital. Most of the states require the capital to be paid up in cash before business is begun. Only one class of stock is issued. 3. In order to incorporate a certificate of incorporation must be obtained and approved by the state banking department. The banking department approves the certificate after the specifications of incorporation have been fully or adequately met. The banking department then issues a certificate of incorporation, and the company may begin business. 4. Management of the trust company is entrusted to a board of directors elected annually by the stockholders, according to the manner as prescribed by law. 5. Audits are required at stated intervals showing the conditions of the company as of a certain date. In addition the company is also subject to inspection and examination by the state banking department, which has power not only of examination, but may direct that certain illegal practices be discontinued, or may close the institution and begin liquidation process. 6. In some states, trust companies are required to report the amount of funds in trust. The practice is by no means uniform. 7. Trust companies are subject to taxation usually upon their capital stock and upon real estate held according to the property tax laws of the states. The trust companies are liable for expenses incurred in examining the institution by the state bank department.151 8. The directors of trust companies are restricted as to the amount of dividends they may pay out to stockholders. Most of the states require that a surplus shall he built up and maintained amounting to a certain per cent of the capital stock of the company. Furthermore, many of the states define "earnings" and provide that the dividends be paid out of earnings. 9. The trust company is required to keep a true list of stockholders and open to inspection of any stockholder during business hours. 10. The trust companies carrying on a deposit subject to check business must keep a reserve varying from 10 per cent to 25 per cent. Many states provide that the reserves be the same as required under the Federal Reserve 8yetem. 11. Ho trust company is allowed to loan on or purchase its own shares of stock, nor loan more than 10 per cent to any one person. 12. All trust companies are amenable to state laws. The supervision thus far discussed has all been imposed by the states. The discussion of supervision would not be complete without giving some attention to their statue under the Federal Reserve Act, and the Federal supervision which results from it. Section 11 (k) of the Federal Reserve Act gives the Federal Reserve Board authority "to grant by special permit to national banks applying therefor, when not in contravention to state or local law," the right to act in any fiduciary capacity "in which 80. There was a time as early as April, 1904, when it was suggested that trust companies be brought under direct Federal control and supervision, and in his report for the same year, the Secretary of the Treasury recommended Federal supervision of trust companies. A bill was introduced into the House in 1905 providing for the Federal incorporation of trust and insurance companies of the whited States. (Congressional Record, 59th Cong., 1st seBs., vol. XL, pt. 1, p. 55, H.R. 475, December 4, 1905) During the Panic of 1907 President Roosevelt and Secretary Cortelyou considered supervision of trust companies by the federal government. (Cortelyou1 s speech is in Congressional Record, 60th Cong., 1st Bess, vol. XLII, pt. 7, pp. 6253-62, 6259, 6261.) A bill was introduced152 state banks or trust companies, or other corporations which come into competition with national banks are permitted to act under the «81 laws of the state in which the national bank is located," Immediately the trust companies saw the possibility of serious competition from national banks, and it was their turn to complain as the state and national banks had done when the trust companies were carrying on an unrestricted banking business. The banking magazines and banking fraternities pointed out various dangers which might befall the institution, very much the same as the bankers had pointed out the reasons why trust companies should be regulated. At any rate the act was a reality, and at once banks began applying for fiduciary powers. Inasmuch as they were granted fiduciary powers they became trust companies in the strict sense of the word; fiduciary or trust business now became one of the possible activités in which national banks might engage if they chose to. A situation arose in which Sec. II of the Act was tested in the law courts. The first case was in Illinois, where the State Auditor denied the First National Bank of Joliet the right to in the House in 1912 to provide for a desirable amount of publicity of trugt company reports of conditions of assets and liabilities. (Congressional Record, 62nd Cong., 2nd sees., vol. XLVIII, pt. 6, p. 6101, May 8, 1912) The bill never became a law, and nothing more came until the Federal Reserve Act of 1913. Further references on this subject are Ridgely, Wm. B, "Government Control of Banks and Trust Companies," Annals American Academy of Political and Social Science, vol. XXIV (July, 1904), pp. 17-26. Trust Companies, vol. I, pp. 119—26. Kilburn, F.D., "Control and Supervision of Trust Companies," Annals American Academy, vol. XXIv (July, 1908), pp. 29-42. 81. Section 11 (k) is given complete in Appendix L, p. 226 82. Supra, p. 66 et seq.153 exercise trust company functions. The bank secured mandamus proceedings against the Auditor who was upheld in his position by 83 the Illinois Supreme Court. On December 22, 1916, the Michigan Supreme Court followed Illinois in denying trust powers to Q M national banks0 on the basis that: 1. Congress has not the constitutional authority to confer Buch powers on National banks. 2. Because, even if Congress had such power, it could not delegate it to the Federal Reserve Board. 3. Because the granting of such powers would be in contravention to state law. The Michigan case went to the Supreme Court of the United States which did not uphold the decision of the State Supreme Court. The fear that Section 11 (ip) of the Federal Reserve Act was encroaching upon the prerogatives of state sovereignty was clearly explained by Chief Justice White, who pointed out that federal legislation was cognizant of the sovereignty of the state in regulating and supervising corporate fiduciaries. He 85 „ points out that "a State law which has given functions to State banks or corporations whose business in a greater or less degree rivals that of national banks engenders an implication of authority in Congress to do as to national banks that which the state law has don® to other corporations." When a national bank is vested by the Federal Reserve Board with fiduciary powers, it thus becomes a 83. People ex rel,National Bank of Joliet vs. Brady, State Auditor of Public Accounts, 110 N.I. Rep. 864. 84. First National Bank of Bay City vs. Fellows (1917) 244, U.S. 416, 426; 37 Sup. Ct. Rep. 734. Also: Trust Companies, vol. XXIV (March, 1917), pp. 231,241. Trust Companies, vol. XXIV (June, 1917), p. 553.154 quasi-state institution. It is subject to the regulation and supervision of federal authorities by virtue of its federal charter, to do a complete banking business, and it is subject to the regulation and supervision of the state authorities to the extent that it performs fiduciary functions, that is, to the extent that , 86 it is a trust company. What the outcome of Section 11 (k) of the Federal Reserve Act and subsequent legislation and court decisions has been, is to put national banks on an equal basis with state chartered institutions. In other words it ended what might be called a type of discrimination against national banks; such discrimination had not been purposely done by the states, but the states in allowing a wider range of activities with less strenuous regulations, were in fact, aiding a system which was seriously threatening the existence of the national banking system. This grant of powers to the national banks would serve, to an extent, to put them on a competitive equality with state banking institutions and trust companies. After the Supreme Court decisions settled the question, and made it possible for Rational banks to act in a fiduciary capacity, many of the states passed "enabling acts," making it possible for national banks in the various states to obtain 86. Federal Reserve Act, sec. 11 (k) and Regulations F of the Federal Reserve Board Series of 1924.155 87 fiduciary powers, which, at that time, wae clearly in contravention to state lawB. This aocounts, partially, for many recent changes in laws of the states dealing with trust companies, which there is were mentioned in former pages of this chapter. Hence/federal supervision only inasmuch as trust companies are members of the Federal Reserve System and therefore subject to the rules and regulations of the Federal Reserve Board; the examinations by the Federal Reserve Banks are cooperative with state banking supervision, This supervision of trust companies has nothing to do with the fiduciary activities of trust companies, which are under the control of the courts and the state banking departments. Rational banks, to the extent that they exercise fiduciary powers, are not amenable to federal supervision, but are placed by the Federal 87. (a) The following states have enacted laws expressly authorizing Rational banks to exercise trust powers: Colorado, Indiana, Iowa, Ohio (trustee and registrar only, and then only when the capital is over $100,000); South Dakota, Vermont. Virginia, Washington (paid up capital of $50,000 necessary); Delaware (trustee executor, administrator and registrar of stocks and bonds); Georgia (Rational banks may act as trustee, executor, administrator, and registrar of stocks and bonds} (b) Pursuant to an opinion of council it has been determined that Rational banks may exercise trust powers in the following additional states, such exercise not being in contravention to state law: Alabama, Arizona, Arkansas, California (registrar only); Connecticut, Delaware, District of Columbia, Florida. Georgia, Idaho, Illinois, Kansas. Kentucky, Louisiana, Maine (trustee, executor, and registrar); Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Hebraska, Revada, Hew Hampshire (trustee and registrar); Hew Jersey (if organized prior to March 24, 1899), Hew Mexico, Horth Carolina, Worth Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, West Virgina, Wisconsin, Wyoming, Utah. Pratt*s Digest of Rational Banking Laws, July 1, 1924, p. 234.156 Reserve Act under stat.e courts And state bank supervision. In conclusion it is at once apparent that the trust company occupies its rpesent position largely as a result of its own natural outgrowth of the economic conditions; the companies naturally grew more in some states than in others, which accounts for a greater amount of legislation which came earlier, and may be said to explain, to a degree, the more advanced legistlation in those states. The various states at the present time, taken as a whole, regard trust companies as banks and make them amenable to their banking codes. Such being the case, therefore, it ia in itself sufficient reason to account for the wide variances which have been emphasized in this chapter. At the time banking began to be significant part of the activities of trust companies, there was no regulation either to hamper the companies in their activities or protect the depositors who were tempted to entrust their funds to trust companies on the promise of liberal interest payment. Legislation was finally enacted which promised a degree of protection; however, the wide variation simply is a means of emphasizing that ours is a system of heterogeneous banking.OHAPTER V THE TRUST COMPANY AS A BANK158 CHAPTER V THE TRU8T COMPANY A8 A BARK In the history of financial institutions of America, no one institution has passed through as many evolutionary stages as has the trust company. In the "beginning, the "business of trust was an adjunct to fire and life insurance.^- It was not until 1853 that the first purely trust company was chartered, more than twenty years after trust powers had been given to the Farmers Fire Insurance and Loan Company of New York, which was the first. The 3 "business of the early trust companies was fiduciary for the most part; however, certain activities were assumed by trust companies 3 which resembled commercial banking. The lines of demarcation between trust companies as fiduciaries and other classes of financial institutions have been rapidly disappearing until now, the difference between trust companies and banks is so slight as to escape the observation of the average person, while even those familiar with both institutions must find the difference in the theories upon which they are founded, rather than the functions 1. Supra, chapt. I 2. The"early* trust companies refer to the ones from the first one in 1822 up until a time shortly after the middle of the nineteenth century, when other activities were added. They were dealt with in Chapter I. 3. Such as paying interest on deposits, conducting savings and safe deposit business, etc. Emphasized in Chapters I and II. ______________________________________________________________________which they actually exercise.4 This evolutionary development, which finally resulted in trust companies becoming commercial banks, came as a result of trust companies taking on certain activities which were allied to fiduciary business. They are briefly reviewed as follows. The first was the encroachment of the trust company, as such, on the field of savings banking and later commercial banking. The result is that today every state except Kansas, Michigan, and Nebraska legally permit trust companies to engage in commercial banking. Savings banking, which is a close ally of trust business, is permitted in every state but five: viz., Kansas, Nebraska, Michigan, New York, New Jersey. Generally speaking, the trust company of today combines all the functions of a regular commercial 4. The theoretical differences between the two types of institutions were well stated by Judge Sulzberger of the Common Pleas Court of Philadelphia in a case in which it was held that the stockholders of the Union Surety and Guaranty Company of Philadelphia were not subject to the double liability to which the stockholders of banks were subject. The court said, "Banks and trust companies are not identified with each other in the popular mind. Banka are ancient, trust companies are modern; banks deal primarily with merchants, trust companies deal with all classes, without distinction. Banks lend on personal credit, trust companies on the security of pledged collaterals. Banks take the risk of the business success of mercantile enterprises, while trust companies incur only the risk of a decline in investment values. Banks actively promote commerce, while trust companies manage investments. What they have in common is that they both receive deposits, which they put out at interest so that the dividends or profits may be earned for the shareholders. Even in this respect there are important differences between the two. Normally banks pay no interest on deposits; trust companies pay such interest. Banks under the power of discount are allowed by law to earn interest at a rate somewhat higher than 6 per cent, while trust companies are limited to the ordinary legal rate of 6 per cent. Union Surety and Guaranty Company vs. Stevenson, Appellant, 37 Pa., Sup. Ct. 334. This distinction will not hold now except in the case of companies doing purely fiduciary business. The Federal Reserve Act and recent changes in the State laws make provision for no such distinction at the present; however, such was the case even as late as160 bank, savings bank, and fiduciary, with the latter often furnishing only a small part of the business. It was pointed out in Chapters I and II that the first combination of insurance and trust business was dropped and the last twenty-five or thirty years of the nineteenth century marked the period in which the business of banking was added. In the eighties the great development of the trust company as a bank began which has continued ever since. The next was the acceptance of checking accounts. It was pointed out that trust companies accepted deposits subject to 5 check at a time as early as 1857, and in certain cases even g earlier. The trust companies had in their possession a class of checking accounts which were not "commercial accounts" in the sense in which they were commonly spoken of by the commercial banks. 7 They were the accounts of professional men and women and others which were checking accounts but not of the active business variety. The turnover in these accounts was small, and about all the depositor expected was safe-keeping of the deposit; however, the trust company began encouraging such deposits by paying interest on them if the account was kept above a specified figure. In recent years this type OT account is common, but in earlier years it was not wanted by the banks. Besides these accounts, ordinary deposit 5?°iupra, chapt. I, p. 19. 6. For example, the Ohio Life Insurance and Trust Company, 1838-1857. There is no way of telling the volume of checks cashed for they passed through the hands of the correspondent banks. 7. Such would be the case of a person having a personal account in connection with his regular business account; this is very common among business men and women today. 8. "Is the Trust Company to Lose its Distinctive Character?" Bankers Magazine, January, 1910, vol. LXXX, pp. 69-73.161 accounts were solicited which paid interest to the depositor. These accounts were subject to check the same as if they had been 9 deposited in a commercial bank. Another activity, and the next step after the carrying of accounts for the class just mentioned, was the acceptance of regular commercial deposits and accounts, implying discount privileges the same as offered by a commercial bank. Before the state laws specifically authorized trust companies to do commercial banking business, it was done under implied powers since it was not absolutely prohibited by law; but, at the present time forty-five of the forty-eight states permit trust companies to engage in commercial banking. The most recent development is a change in the bank codes permitting state banks to engage in trust or fiduciary business. This is true of the codes of Illinois, Kentucky, Ohio, and California which authorize state bankB to be incorporated with, or later acquire, fiduciary powers, provided they meet with specified requirements.^ The same thing has been accomplished in other states by granting full banking powers to trust companies, or by passing enabling acts which were designed to place both state and national banks on the same basis as trust companies in obtaining fiduciary powers. This makes the difference between national and state banks and trust 9. These deposits were in addition to "deposits in trust.* 10. Supra, chapt, IV ,162 companies negligible, judging from the fiduciary business. In order that there might be some distinction between national and state banks on the one hand, and trust companies on the other, as well as to protect the word "trust" against wrongful 12 usage, all of the states*except about half a dozen, have provisions in their laws protecting the word "trust" and confining 13 its use to corporations engaged in banking or trust business. Hever at any time did the word "trust company" indicate a bona fide 14 corporation serving only in a fiduciary capacity. The indiscriminate use of the word makes it difficult to educate the public as to what a trust company really is as distinct from other financial institutions. Many institutions without the word trust in their titles may be actually trust companies within the real meaning of the term, while many concerns with the word trust in their titles are actually commercial banks doing no fiduciary business (Illinois, for example). Since the national banks may now obtain fiduciary powers, the presence of the word trust is even less significant. Out of the 2,103 national banks in the United States 11. Trust Companies were never banks of issue except for one or two isolated cases. 12. The states which do not protect the word trust are Idaho, Colorado, and Louisiana, Illinois, Nendo, Virginia, Georgia (Georgia provides that if a Trust Company is not under State iupervisibn, it must §© advertisiK Thie adtion to protect the name "trust" was brought about largely by the Trust Company Section of the American Bankers Association. 13. Accounts have been found of concerns being called by a title of which "trust" was a part, doing all kinds of loan, mortgage, pawn shop, brokerage, installment, speculative, and even disreputable business. Hence for legitimate business the name should be protected. 14. The early companies added fire or life insurance, or loan, or annuity business; later commercial banking became the co-partner to trust business. Supra, chant. I and II.163 granted powers to perform trust functions up to January 1, 1927, there were only 471 which had incorporated the word "trust" in their titles. An examination of the reports of state banking departments reveals that many banks bearing a trust company name are not trust companies but banks. For example, Washington State has 5 trust companies and 244 state banks. Thirtywfour.state bankB have received trust powers of which 21 have "trust" as a part of their titles and the remainder (13) are state banks, and in no way 15 trust companies.. A similar situation was found to be the case in many of the states, as Colorado, Connecticut, Maine, Massachusetts Iowa, North Carolina, Illinois, Indiana, Montana, Oregon, and others. It is evident, therefore, that the popular usage is hopelessly confused. However, the purpose of this study is to consider the development of banking in the institutions which were trust companies at the start, or which later acquired fiduciary functions. The study does not include state banks which perchance 16 have the name trust in their titles. 15. Twenty-first Annual Report of Superintendent of Banking of Washington, 1927. 16. The term "trust company" as used in these pages includes! 1. All companies with the word "trust" in their titles actively engaged in business in the United States and coming under the jurisdictionof the 3tate Banking Departments or State Auditor, and doing both a trust and banking business. 2. Those banks, banking associations, or institutions acting in a fiduciary capacity without the word "trust" in their titles but supervised by the State Banking Departments or State Auditor, and classed as trust companies by the State official to whom they are amenable. This classification eliminates such a mixture as just referred to in the State of Washington. The statistics used for trust companies in that state are for a total of 30 companies. See Appendi* J, Table IX, p. 224.164 In the process of development of Its hanking activities, the trust company engaged in practices which were hardly within the grant of its legal powers. One of the most common of these was loaning on collateral. Ordinarily the trust companies loaned on real estate mortgages, but an extensive collateral loan business was carried on even though prohibited in many of the states (e.g., Pennsylvania, New Jersey, Massachusetts, Minnesota, Missouri, and others). The laws of these states definitely said such was not one of the powers of trust companies, but it was done either directly or indirectly, as was the discounting of ordinary commercial paper. In Pennsylvania, for instance, trust companies were not permitted to discount promissory notes for customers. This was gotten around by the fiction of purchasing the paper made by customers, for investment. To make such a transaction appear within the bounds of the law, they charged up such notes on their books, not at face value, as do commercial banks, but at the purchase price, and never took credit for the discount until it tas earned. Of course, so far as the customer was concerned it made no difference, for he could check against the proceeds just the same. In Minnesota a trust company was not permitted to discount for, or buy from any depositor, any note whether his own or merely bearing his indorsement. In Missouri until 1915 if a trust company held commercial paper it did so by purchase under the statute giving it the right to "buy and sell all kinds of Government, State, Municipal, and other bonds, and all kinds of negotiable and non-negotiable paper, stocks or other investment securities." In 1915, this law was changed giving trust companies165 the right "to discount and negotiate promissory notes, drafts, "bills of exchange and other evidences of debt; buy and sell coin and bullion; and loan money upon real estate or personal property and upon collateral or personal security, at a rate of interest not exceeding that allowed by law." Likewise, Minnesota changed the provision in her statutes, permitting trust companies to "loan money and secure such loans by mortgage, trust deed or pledge, purchase notes, bonds, mortgages, . . . and securities, and sell and assign the same . ... and convert them into cash or other 18 authorized securities . . ." This may be cited as another evideiae of the breaking down of the theoretical difference between a bank and trust company, which until 1908 and 1910 was very pronounced. The natural outcome of these operations was to make the trust company a bank in a commercial sense of the word, and the relegation of trust business to second place. The increase in numbers of trust companies and its growth in banking power during the past quarter century is very remarkable. The significance of its growth and power may readily be seen from the following table. 1?. Laws of Missouri, 1915, sec. 127, art. 10. 18. General Statutes of Minnesota, 1923, No. 7730. I166 TABLE VII The Aggregate Balances of National Banks and Trust Companies During the Years 1903 and 1926, and the Percentage of Total Resources of Each Institution to the Total Banking Power of the United States (000 omitted) For the Year 1903 4,938 National 531 Trust 912 Trust Banks as of Companies Companies June 1 (Trust Com- (Comptrollers Reports) panies of U.8j Capital stock, surplus and undivided-.nrofits.Il,285,689 I 547,304 $ 680,000 Total deposits t9. . . . 3,348,095 1,711,485 2,122,000 C i rculat 1 on •••••• 359,30 3 . ....... »»»»»« Total banking power. .*4,993,087 $2,258,789 $2,802,000 Total banking power of all banks ........... $13,363,900 Percentage of banking power to total banking power: National Banks ................. 37.36$ 531 Trust Companies ............ 16.90$ 912 Trust Companies ............ 20.09$ F .or the-Year.,.1926 7,972 National 1,656 Trust 2,684 Trust Banks as of Companies Companies June 1 (Trust Compen- (Comptrollers Reports) les of U.8.) Capital stock, surplus and undivided profits.$ 3,087,583 $ 1,667,164 $ 2,422,807 Total Deposits*? .... 16,177,739 9,805,305 15,892,226 Circulation ............ 650.662 ....... ....... Total banking power. .$19,915,984 $11,472,469 $18,405,033 Total banking power of all banks ..... $64,893,469 Percentage of banking power to total banking power: National Banks ................. 30.69$ 1,656 Trust Companies............17.83$ 2,684 Trust Companies........... 28.36$ 19. Total deposits for National banks include: (l) Individual Deposits, (2) United Stattes Deposits, (3) Deposits of United 8tates District Officers. Total deposits for Trust companies include: (l) Individual Deposits, (2) Due to banks and bankers.167 A comparison of the items of the national hanks and trust companies for the years 1903 and 1926 reveals points significant in the relative growth of the two institutions. For the year 1903 it is seen that the national hanks held 37.36 per cent of the hanking power of the country, while trust companies held 20.09 per cent. Using the same sources for the year 1926, the percentage had shifted—the national hanks holding 30.69 per cent, and the trust companies holding 28.36 per cent, or a gain of 8 per cent hy the trust companies, and a loss of 7 per cent hy the national hanks. The significance of these percentages stands out more clearly if the net increase in number of hanks is considered. The net gain in number of national hanks was 3,033 and in trust companies, 1,772. The gain in number of national hanks was nearly double that of trust companies, yet the net hanking power of national hanks show a 7 per cent decrease, while the trust companies show an 8 per cent gain. The hook value of trust companies is likewise higher than national banks, being 41 per cent higher than national hanks in 1903 hut only 5 per cent higher in 1926. Book Valus mi National Banks Trust Companies National Bank s Trust Companies Capital stock Surplus and Un- $ 743 $ 317 $1,412,872 $1,087,415 divided profits Ç42 $1,385 173% .JSÄ $ 880 or 214% $3,088,383 218% $2,422,806 or 223% A similar idea of growth of the hanking power of trust companies may he obtained from the following table which shows168 the relative growth of National, State, and Savings banks, and Trust companies in New York for a period of thirty years from 1893 to 1923. THE 8TATÜS IN THREE, TEN YEAR PERIODS IN NEW YORK ?n OF NATIONAL, SAVING8, STATE BANKS, AND TRUST COMPANIES The Items Contrasted are* (1) Total Resources, 1893, 1903, 1913, 1923 (2) Increase in Dollars for the Three Periods (3) Increase in Percentage for the Three Periods (In millions of dollars) I. Total Resources for: Kind of Institution ms 1903 ISIS 1923 1. National Banks... $ 734 $1,522 $ 2,540 $ 4,632 2. Savings Banks ... 704 1,238 1,926 3,471 3. State Banks ..... 271 382 625 1,609 4. Trust Companies . 341 um . i+m ...JLJaa $2,050 $4,181 $ 6,667 $13,499 II. Increase in Dollars in: First Ten I Second Ten Third Ten glad Pl-iSBUidUon ?.g&T- -perl.Pfl Year Period Year Peri01 ( 1893-1903) 1 (1903-1913) (1913-1923; 1. National Banks... $ 788 $ 1,018 $ 2,092 2. Savings Banks ... 534 688 1,545 3. State Banks 111 243 984 4. Trust Companies • 698 535 2,212 Increase in Percentage Kind of Institution in: First Ten Year Period Second Ten Year Period Third Ten Year Period 1. National Banks... (1893-1903) (1903-1913) (1913-1923) 106 66 82 2. Savings Banks ... 76 56 80 3. State Banks 41 62 15 4. Trust Companies . 204 £1 141 Average 107 59 79 20* Annual Report on Banks of Discount and Deposit. Annual Report on Savings Banks, Trust Companies, Safe Deposit Companies, miscellaneous corporations and Personal Loan Brokers for the given years.169 The table shows that the total resources for all institutions doubled in the first ten year period (1893-1903), increased by more than 50 per cent in the second ten year period (1903-1913), and again doubled in the third ten year period (1913-1923). The trust companies made their greatest gain in the first period, when the percentage increase was 204$, as compared with a 106 per cent increase by national banks, and 76 per cent and 41 per cent for savings and state banks respectively. The second ten year period shows less increase in each of the four classes of institutions considered, with trust companies actually showing the least percentage increase of 51 per cent, and national banks showing the most with 66 per cent. In this period, state banks show the only gain of any of the four; while the others lost from 20 per cent to 153 per cent; the state banks gained 21 per cent over the first period. The third period (1913-1923) shows an increase in percentage for national banks, savings banks and trust companies, but in this period state banks drop to their lowest Si gain of 15 per cent. National banks gained 82 per cent; savings banks, 80 per cent; and trust companies, 141 per cent. The average change for all four classes of institutions combined was 79 per cent which was 20 per cent higher than in the previous period and 18 per cent lower than the increase of the first 10 year period. The growth in banking power of trust companies may be 21. The reason for the decline in percentage of resources of trust companies from 1903 to 1913 is due partly to the Panic of 1907 in which the trust companies were the greatest losers, and to the changes which were introduced in the New York laws. 9upra, p. 111. The reason for the decline in state bank resources in the last period is due In bkrt to the introduction of the Federal Reserve svetem.170 22 further emphasized by comparing the actual number of trust companies national and state banks of the United States together with their capital and surplus, and total resources for a fifty year period. The growth in numbers of national banks is steady, but not in large increments; the number was 2,088 in 1875 and 8,072 in 1925, or an increase of 287 per cent. The numerical increase in state banks was from 551 to 16,983, or 2,982.2 per cent. The increase in numbers of trust companies is from 35 to 1,680, or a gain of 4,700 per cent. From the actual increase in numbers, the trust companies show an increase of 1,718 per cent more than state banks, and 4,418 per cent more than national banks. By a comparison of the capital stock and surplus of the three types of institutions the greatest net gains appear to have been made by trust companies. Graph VI on the next page illustrates this. The capital stock and surplus of national banks increased from $639,100,000 in 1875 to $2,488,400,000 in 1925, or a gain of 289 per cent. 9tate banks for the same period increased their holdings of capital stock and surplus from $75,800,000 to $1,706,700,000, or 215 per cent. The capital stock and surplus of trust companies increased from $28,800,000 in 1875 to $1,366,700,000 in 1935, or an increase of 465 per cent. Likewise, a comparison of national and state banks and trust companies in their total resources shows that trust companies have had the greatest increase. Graph VII on the page following 33. Graph II showing increase in numbers of trust companies, State and National Banks is in Chapter III, p. 62-a. These figures are based on the Reports of the Comptroller.r Graph VI illustrates this. The total resources of national hanks increase from $1,882,300,000 in 1875 to $34,350,900,000 in 1935 or 1,193 per cent. The state hanks show an increase from $272,000,000 to $15,979,300,000 which amounts to 5,775 per cent. Trust companies increase their total resources from $133,900,000 33 to $11,565,500,000 or 9,312 per cent. 3* By a comparison of the trust companies of New York 8tate with the other institutions under the supervision of the Banking Department for that State, a similar contrast in the growth of trust companies is shown. In 1882 threetrust companies had total resources amounting to $82,010,000, which hy 1937 had increased to $5,745,684,000, or a remarkable gain of 6,906 per cent. The hanks of discount and deposit show an increase from $94,023,000 to $2,004,336,000 or 2,031 oer cent. 8avings hanks increased from 25 $354,222,000 to $4,347,527,000 or 1,130 per cent. 23. If the total resources as are given in "Trust Companies of the United 9tates" were taken, the increase would then he from $122,900,000 to $18,145,600,000 or 14,664 per cent. This figure is perhaps more representative of the actual total resources, hut for sake of consistency, the figures as given hy the Comptroller are used throughout. It will he recalled that the Comptroller has no authority to demand reports; all his information comes from trust companies replying to his request for statements or from the Banking department of the various 4ates. 34. Sprague, in speaking of the growth of trust companies in New Yrok, compared with other hanking institutions says that "the growth of trust companies was vastly, even dramatically greater" than national or state hanks." ^Crises under the ational Banking 8ystem," p. 237. 25. A statement of the aggregate resources and deposits of different classes of institutions coming under the New York Banking Department is as follows: l173 Graph VIII on the following page illustrates the growth of trust companies compared with other banking institutions in New York. It shows that trust companies surpassed state banks of discount and deposit in total resources in 1888. By 1905 the total resources of trust companies were greater than national banks. The curve for trust companies shows very clearly that New York trust companies were hard hit by the Crisis of 1907. After that date, they remained about even with national banks until 1916 when they surpassed the national banks in total resources, and have continued to be greater ever since. The New York trust companies reacted very noticeably to the depression of 1921 and 1922, but since then their total resources have increased steadily. The significance of these figures is that the particular type of institution under consideration has shown a development much greater than any other type of financial institution. Taking the combined banking poweggfor all banking institutions (1926), which was 164,893,362,000, it is at once evident that the combined Number 262 149 129 68 99 60 2 307 1 1 166 -.17, 1,311 As. of December 31. 1926 (000 omitted) glass of Institution a Deposits Resources Banks of Deposit and Discount. # 1,735,870 #2,004,336 Savings Banks .................. 3,865,152 4,347,527 TRUST COMPANIES .................. 4,681,297 5,746,684 Private bankers ..................... 29,112 38,974 Safe Deposit companies ....... 24,943 Investment companies........................... 932,849 Security companies ............................... 2,111 Savings and Loan Associations. 297,707 Building Lot Association ............................ 24 Land Bank of the State of New York............................................ 8,139 Credit Unions .........„......................... 12,530 Personal Loan Companies and Brokers ................................... lr41^ Total ................ #10,311,433 #13,402,340 36. Report of Comptroller for 1926, p. 91-3. Figures given are as of June 30, 1926, which includes all banks (28,146) in the United173 banking power of trust companies, which was $19,335,270,133 (3,684 institutions reporting) according to "Trust Companies of the United States" and $13,205,196,000 (1,656 companies reporting) according to the Comptroller of the Currency, amounts to nearly one-third of the resources of all institutions* Although representing nearly one-third of the combined banking power of the United States, this aggregate visuzlizes but a relatively small part of the real picture of trust company activity and development. The reason being that these figures have to do with the banking resources only and do not include the values of the individual and corporate trusts held under administration by the trust companies. No information is to be obtained of the exact amount of the funds held by trust companies, for in no state, except Pennsylvania, is the amount reported upon and published. In that State the Trust funds and Corporate funds held by institutions are 37 as follows: Trust. Junfla 8tate Institutions......... $3,363,639,790 National Banks ............... 131r534f70S $3,495,174,496 Corporate Trusts State Institutions ........ $6,035,152,931 National Banks ........... 60'648r933 $6,085,801,854 States, Alaska, and Insular Possessions. The banks listed are 16,493 State Commercial banks, 1,656 Loan and Trust companies, 620 Mutual savings, 904 Stock savings, 455 Private banks, making a total of 20,168; these with 7,978 National banks make a grand total of 28,146. The number of trust companies as given by "Trust Companies of the United States" also includes the companies of Alaska and Insular Possessions. 37. Letter from Mr. Peter 0. Cameron, Secretary of Banking, April 26, 1928, showing conditions of Pennsylvania Trust Companies as of March 13, 1938.____________________________________________________174 From this it may be concluded that the amount of funds held by trust companies of the United States in individual trust and estate funds is stupendous. It is estimated that the amount of estate funds held by trust companies at the present time is around twenty billions. Corporate trusts, custodian accounts, registrar and transfer operations, and other fiduciary obligations attain a valuation of probably eighty billion dollars or more. Thus between the individual and corporate fiduciary activities and banking activities, the trust companies of this country may be safely said to have in charge fully one hundred and twenty billion dollars or more. Considering the fact that there are only 3,684 companies (according to "Trust Companies of the United States," or 1,656 according to the Comptroller) holding nearly one-third of the banking resources which are held by about ten times as many other banking institutions, the significance of the banking power of trust companies is at once evident. It may be further emphasized by comparing the amount of banking power of trust companies centered in six states, in which the trust companies are strongest. The states and their holdings are as follows: New York ............. #6,056,210,169,04 Pennsylvania .......... 2,540,167,064.83 Illinois .............. 2,051,631,952.83 Ohio .................. 1,688,299,234.08 California ............ 1,366,734,960.49 New Jersey .........._lf263f507f518.42 Total ...........#14,966,540,899.69 Of the total hanking resources of trust companies, these six states hold nearly fifteen billions, or nearly 75 per cent of the total 28 which is #20,481,182,738 according to the 1927 report. 28. Figures come from "Trust Companies of the United States." 1927175 There are eight states where Trust Companies report over two hundred millions and less than one billion resources, which are as follows: Massachusetts .............. $ 941,237,546.00 Missouri ..................... 456,625,221.00 Indiana...................... 363,543,678.00 Louisiana .................... 343,816,873.00 Rhode Island ................. 334,618,873.00 Connecticut .................. 320,439,903.00 Maryland ..................... 298,891,314.00 Michigan ..................... 225,120,462.00 Considering the fact that this amount of banking power is centered in a relatively small number of companies, the most being in Pennsylvania with 422 companies and the least being in California with 30, in the first group; and Indiana with 162 having the most and Rhode Island with 10 having the least in the 29 second group, the immensity of the power is at once apparent. A further comparison of certain items of trust companies with banks shows other points of contrast. It has been emphasized that trust companies were not subject to the same laws as were state and national banks, but on the other hand they were allowed more or less complete freedom of enterprise. This applies especially to the capital stock requirements, which, in most 30 instances, had no set minimum until very recent years. At no time have the capital stock requirements of trust companies been graded to the population as universally as they have been with both 29. See Appendix J * p. 224» for recapitulation of number and resources by states. 30. Massachusetts had a minimum capital stock requirement as early as 1888, supra, p. 100.176 8tate and National banks. The result is that the average capital stock for trust companies from the year 1903 to date, is much higher than could be expected for either national or state bankB. Graph IX, on the following page, emphasizes the difference in the amount of the average capital stock of national banks, state banks, and trust companies. The average capital stock of trust companies in 1904 was $332,307 which gradually decreases until a low point is reached in 1913 with an average of $270,313, but from then on the increase has been gradual until the point of $425,231 is reached in 1927 which is the highest. As might be expected the average capital stock of state banks ranged very much lower, starting with $50,183 in 1904 and reaching its lowest point in 1912 with $34,307. The average capital Btock of national banks was $143,950 in 1904 and remains at about the same average throughout the twenty-two year8, amounting to $177,086 in 1926. A comparison of the three institutions in their net worth shows that the trust companies rank very much higher than their nearest competitor—the national banks. The average net worth per company for trust companies ranges between $714,054 in 1904 and $980,600 in 1927. The low point was in 1916 with $604,791. The average net worth per company for national banks ranges between $253,048 inl904 and $388,480 in 1926 with $244,402 being the low point in 1908. The surprising thing from this comparison is that the average capital stock for all trust companies for the twenty-two years was substantially equal to the average net worth of all national banks for 7 years, and greater than the average net worth of all national banks for 15 of the 22 years. As naturally would be expected the average net worth of177 state banks is very low compared with the other two types of institutions; the average net worth of state banks also shows a wider range in variance than is shown in national banks or trust companies. In 1904 the average net worth was #82,309 and drops as low as #53,299 in 1916, which by 1926 had increased to #117,837. This comparison will serve to emphasize the power concentrated in a few institutions compared with national banks which outnumber trust companies nearly 8 to 1, and state banks which outnumber trust companies 16 to 1. A comparison of the average total deposits per company for each of the three types of institutions shows that of trust companies to be much greater. This is very clearly seen in Graph X on the following page. In 1904 the average total deposits per company for trust companies was #2,376,200 which increased over #300,000 during the next year but dropped as a result of the Panic of 1907 to a low point of #1,981,908 in 1908; from then on the increase has been steady, which by 1926 had grown to #6,160,682. The average total deposit for national banks shows a very gradual increase with fewer variations than is shown for either trust companies or state banks. In 1904 the average total deposit was #621,354 which increases steadily to #2,142,443 in 1926, except during the year 1921 which shows a slight filling off not only in national banks but trust companies and state banks as well. This would indicate that the depression of that year reacted in 31. Total deposits here means Individual Deposits and Deposits due to Banks and other Banking Institutions.178 32 about the same manner on all three financial institutions. State banks show a much smaller average total deposits being #299,468 in 1904 and ranging between #217,948 and #219,799 for the years 1909 and 1915 inclusive, which is very low compared with the years prior to and following this six year period. By 1926 the total average deposit of state banks had increased to #797,797, which is very little more than the average total deposit for national banks in 1904. It was seen from Graph II of Chapter III that the growth in individual deposits in national, state and savings banks, and trust companies has been steady except for temporary interruptions. The growth is interrupted by the Panic of 1893 which is shown by a break in the steady progress of each class of institution. Likewise, the Panic of 1907 is reflected by each of the four, but in a more pronounced manner by trust companies which were the most seriously affected. Another thing reflected here is that the individual deposits of trust companies grew and kept pace with all the others, surpassing state banks between the years 1909-1918, and surpassing savings banks from 1916 to 1919, and nearly equaling savings banks again in 1926. This would indicate that the charge which was brought against trust companies from about 1885 to about 1905, that they were acquiring their deposits at the expense of the other institutions, was untrue. The trend 32. State bankB show a decrease in total deposits for 1922 which is even greater than for 1921, while national banks and trust companies do not show such a trend.179 indicates that their deposits grew simultaneously with the other institutions and not at their expense. A noticeable feature of the graph is the relative decrease in deposits in savings banks compared with the other institutions. Their growth is the most steady of all, yet not so rapid as any of the other types of institutions. The advantage of savings banks seems to have been lost around 1914 or 1915 when the deposits began to show a relative falling off compared with national and Btate banks and trust companies, until the total deposits of national and state banks is far in excess of savings banks, while trust companies are nearly equal to it in the last report. The growth in deposits recalls the controversy over cash reserves which was of considerable importance until the legislation in the years immediately following the Panic of 1907 made it imperative that a cash reserve be kept. It will be recalled that the great controversy in Hew York between the banks and the trust 33 companies was over cash reserve. The trust companies had been accustomed to depend on the banks for cash who were not always in position to meet an unexpected call from the trust companies. This was the situation immediately preceeding the Panic of 1907, which proved more disastrous to trust companies than any other class of financial institutions. A study of the cash reserve line B of Graph XI on the following page shows that there was a reason for the charges made by the banks, which were required not only to 33. 8upra, p. 103. It is claimed (Sprague, "History of Crises under the National Banking System, pp. 252-3) that the strained relations existing between banks and trust companies were the reason why banks did not aid the Knickerbocker Trust Company in 1907, and probably avert the Panic.180 keep a minimum cash reserve, but at the same time were expected to be a source of supply for trust companies in time of need. The 34 graph shows a very irregular movement beginning with 10.6 per cent in 1875 which was the highest for all time, and going as low as 2.0 per cent in 1901, which was the lowest point ever reached. The average cash for the first thirty-three years, 1875 up to and including 1907, was 4.7 per cent, but certain periods in the first thirty-three years show extremely low points. Taking the average for five year periods it is as follows: First period 1875-1880 average cash reserve is 4.9$ Second period 1880-1885 average cash reserve is 2,5$ Third period 1885-1890 average cash reserve is 7.3$ Fourth period 1890-1895 average cash reserve is 5.5$ Fifth period 1895-1900 average cash reserve is 4.6$ Sixth period 1900-1905 average cash reserve is 2.8$ The 2.8 per cent for the years 1900-1905 inclusive is the lowest of any of the periods, and the one immediately preceding the Panic of 1907. The last nineteen years taken together average 7.6 per cent which is 3.1 per cent higher than the period before any legislation was introduced which provided for a minimum amount of cash to be kept on hand. The average for the entire 52 years is 5.8 per cent which is lower by nearly 2.0 per cent than the average for the years since 1908. The trust companies in New York City from the year 1903 to 1910 carried a small amount of reserve ; the figures are as follows: 34. A similar graph of cash reserve is on p. 90-h chapt. Ill* Graph181 TABLE IX 35 Reports of Trust Companies in Hew York 1903 - 1910 (000 omitted) 1202_____________1204_______________1205________________19.Q.6. 1. Due depositors including banks and savings banks 2. Deposited in banks 3. Cash on hand 4. Reserve'5® 5. Cash reserve 828,338 876,799 108,180 213,739 23,306 32,247 18.1 28.1 2.8 3.7 1,010,988 98,874 19,936 11.8 2.0 1,055,128 130,360 24,816 14.7 2.4 1907 1908 1909________1910 1. Due depositors including banks and savings banks 1,084,376 732,278 1,182,243 2. Deposited in banks 141,004 104,295 203,162 3. Cash on hand 55,536 47,830 103,584 4. Reserve®® 18.1 20.8 25.9 5. Cash reserve 5.1 6.5 8.8 1,298,081 148,629 145,381 22.6 11.2 The table shows a very low cash reserve in each of the years prior to 1907. Also the reserve based on "cash and on deposit in other banks and banking institutions" is very irregular, going from 28.1 per cent in 1904, which is the highest for the seven yearB, to 11.8 per cent in 1905 which is the lowest for the seven years. These figures show the effects of the Panic of 1907 on New York trust companies in clear relief. The amount due depositors including banks and savings banks decreased 1352,098,057. The amount deposited in banks decreased §36,808,568, and cash on hand §7,706,554. The years following 1909 show totals in the same items 35. Annual Reports on Banks of Discount and Deposit. Annual Reports on Savings Banks, Trust Companies, Safe Deposit Companies, etc. 36. Reserve is computed on cash and in banks to total deposits.182 which surpaBB any of the previous years. The reserves of trust companies for the fifty-two years following 1875 show a strange series of movements. Graph XI on the next page', shows the great irregularity of both the cash reserves and the total reserves for the fifty-two years. The percentage of total reserve (based on cash and due from banks divided into deposits and due to banks) for the first tBn years for which there is any record is extremely low, amounting to only 10.45 per cent. After that the percentage shows an increase reaching a point slightly more than 26 per cent in 1894, at which time the cash reserve also shows a marked increase over previous years. This was due, without doubt, to the Panic of 1893. After After 1894 the total reserve shows very irregular movements but keeping well above the average for the entire period, except for the years 1901-03. In 1904 the total reserve reaches the highest point after 1894 when it amounted to 25 per cent, and from that date to the Panic of 1907, the decrease was very precipitous reaching a new low level for the fourteen previous years. The reaction following the Panic of 1907 shows nearly the opposite extreme in both total reserve and cash reserve. It appears that all companies began strengthening both their reserves and their cash, although the cash shows a very slight increase from 1905 to 1907, whereas total reserves were still decreasing. Within the year 1908 the total reserve shows a marked increase from 16.6 per cent to 25.4 per cent and a further increase in 1909 to a new high level for all time which was 27.37 per cent according to the 37. See Appendix P , p. 230, for complete statements of New York Trust Companies for 1907, 1908, and 1909, which shows the depression and recovery.183 Comptrollers Reports and 28.0 per cent according to Trust Companies of the United States. The cash reserve likewise reached a new high level of nearly 10 per cent. Needless to say, trust companies at once began decreasing both their total reserves and their cash as soon as the Panic of 1907 had passed over. The reaction downward shows in the figures for 1910 in both cash and reserves, and has continued to show a downward trend ever since, reaching its lowest in 1923 which amounted to a fraction less than 18 per cent for total reserves and nearly 6 per cent for the cash. The effects of the legislation by the various states is evident here in smoothing out to some extent the variations after 1913. The states as a whole passed laws requiring the same reserves for trust companies as were required for state banks, which amounted generally to 15 per cent of which 5 per cent was to be cash. The statistics of both cash and total reserves show that in recent years the trust companies as a group have more than conformed to the requirements, for at no time since 1908 have their reserves been below 18 per cent, which is the average for the fifty-two years, except once in 1923 when the percentage reached 17.89 per 38 cent. Generally speaking, one may say that trust companies from the point of view of cash and total reserves, are as secure 39 as any other financial institution. 38. The average of total reserves for the thirty-three years prior to the Panic of 1907 is 15.92 per cent which is a higher average than would be if the peak years of 1894, 1895, and 1904 were eliminated. The average for the nineteen years since the Panic of 1907 amounts to 21.74 per cent which raises the average for the entire fifty-two years. It will be recalled (supra, p.ft$) that the difficulty between banks and trust companies was not so much over total reserves as over cash reserves, the reason being that the banks held most of the reserves of trust companies. 39. The line appearing on the graph since 1904 is the reserve as184 From the foregoing presentation it i8 evident that trust companies,taken as a group, have a larger average capital and surplus and larger individual and bank deposits than any other class of financial institution. It had also been emphasized that the average cash reserves and the average total reserves were smaller than the legal requirements for state and national banks. The trust companies, therefore, had two advantages over their competitors. First, they had a larger capital, and, second, nearly all their funds could be employed in a manner as to increase the earnings of the company. Such is emphasized in the chart on page 92, Chapter III, which shows the earnings of the trust companies in New York City for the year 1890. In the chart are sixteen companies; all, except one, ^ show additions to the surplus and undivided profits of amounts varying from $23,742 to computed from Trust Companies of the United States. It shows the same general trend as the line representing the reserves as found in the Comptrollers Reports, except that it is higher due to more companies being reported on. 40. The Commission, appointed by Governore Hughes of New York, to study the condition of banking institutions in New York City prior to 1908 found that their percentage of earning resources is as follows? Trust companies make profit on 92.2 per cent of their resources. National banks make profit on 70.3 per cent of their resources. State banks make profit on 70.9 per cent of their resources. Frissell, A.8., "Trust Companies and Reserves," Annals of American Academy of Political and Social Sciences, March, 1908, vol. XXXI pp. 463-469. 41. The one that did not add to the surplus and undivided profits was the New York Life Insurance and Trust Company which shows a shrinkage amounting to $83,081.185 #551,465.42 Hine of the sixteen companies paid dividends in the year 1890 amounting to #1,880,000; of these paying dividends the least paid was #60,00Q^ and the most paid was $500,000.^ The same year each company earned on its capital stock amounts varying from 3.31 per cent (Manhattan Trust Company) to 71.32 per cent (Central Trust Company), with an average for the sixteen companies amounting to 29.91 per cent. The per cent of earnings to net worth show a Bimilar variance from 2.84 per cent (Manhattan Trust Company) to 38.17 per cent (The Continental Trust Company). The average of earnings to net worth for the year was 12.03 per 45 cent. The situation in Hew York City must have been typical of earnings of trust companies in other large cities and the states throughout the country. For example, statistics of the earnings of trust companies in Hew York State, together with the interest and dividends they paid are amilable for the year 1880 to 1910. The first published figure of earnings from all sources for 42. The company adding the #23,742 was the Washington Trust Company, capital stock, #500,000. The one adding the #551,465 was the United States Trust Company, capital stock, #2,000,000. 43. The Metropolitan Trust Company paid #60,000. Its capital stock was #1,000,000 surplus and undivided profits, #716,935. 44. The United States Trust Company paid #500,000 with a capital stock of #2,000,000, surplus and undivided profits of #7,644,293. 45. The Continental Trust Company was organized furing the year and shows the entire amount of surplus and undivided profits, less expenses, in the total earnings column with no dividends paid. This accounts for the company having the largest earnings to net worth. The next highest percentage of earnings to net worth shows up in the figures of the Real Estate Trust Company which did the same as the Continental Trust Company. The Mercantile Trust or Central Trust Company or the United States Trust Company are much more representative; their earnings amounted to 14.05 per cent, 12.95 per cent, and 10.90 per cent respectively.186 trust companies in the State is $5,000,000. This amount increases steadily to 1896 and from that date, the increase is very rapid, amounting to $77,846,107 in 1910. Graph XII on the next page emphasizes the rapid trend of increase of earnings. It was pointed out in Chapter I that the trust companies followed the policy of paying interest on deposits. The amount paid out by trust companies of New York State, according to the figures giwn out by the Superintendent of Banking, was $1,500,000 in 1881. In this particular item the increase in amount paid shows a same general trend as the earnings. This is readily seen from the B curve of Graph XII. While the earnings increased over the thirty year period to the amount of 1,457 per cent the amount of interest paid increased from $1,500,000 to $34,545,150, or 2,230 per cent. This is one of the main reasons for the rapid growth of New York trust companies. The graph also shows the dividends paid by New York Trust Companies for the thirty year period. The statistics on which the graph is based show that $850,000 was distributed in 1881 in dividend to shareholders; the increase in dividends paid is much more gradual than either the earnings or interest paid. The dividends show no very pronounced fluctuation in amount, nor such 46 rapid increase in amount as the other two items. While the 46. For the year 1905 the New York City and Brooklyn Trust Companies paid dividends as follows: Amount paid by 4 companies 6# Amount paid by 5 companies 8$ Amount paid by 8 companies 10$ Amount paid by 6 companies 12$ Amount paid by 2 companies 16$ Amount paid by 4 companies 20$ Amount paid by 1 company. ' 22$ Amount paid by 1 company 84% Amount paid by 1 company 30$ Amount paid by 3 companies 40$187 increase is from $850,000 to $14,383,000 or 1,593 per cent, it is "by no means as pronounced an increase as either the earnings or interest payments. When one considers that this amount was distributed among the shareholders of the companies, which were twelve in number in 1881 and eighty-eight in 1910, it is not hard to explain why they grew. It would not be entirely fair to take an average payment of any one of these items, in order to get an average for each company, for the situation has always been that the majority of trust companies as well as the largest were in New York City proper. The statistics herewith presented give further emphasis to the Panic of 1907 and its effect on trust companies. In 1907, the earnings of trust companies of New York State amounted to $74,756,365. The following year the same item had decreased to $68,511,666 or a net loss of $6,245,699 to be distributed among eighty-five companies of which thirty-eight were in New York City alone. The interest paid depositors decreased from $32,068,555 to $29,415,353 or a lose of $2,653,202, and the dividends decreased from $11,660,488 to $10,370,000, or a loss of $1,290,488.47 Notwithstanding the Panic of 1907, which after all may Amount paid by 2 companies 50$ Amount paid by 1 company 80$ The total 38 companies paid an average of nearly 19 per cent to shareholders. In 1895, the 24 Trust Companies of New York City paid an average dividend of 15 per cent. Trust Companies, 1906, vol. Ill, pp. 288-32. 47. See Appendix R, 232, for statement of aggregate gains and losses by specific companies as shown December, 1908. This shows which concerns gained and which lost in deposits and the amount in each case.188 have served a valuable purpose in extinguishing the weaker and poorly managed concerns, the trust companies soon recovered and have grown rapidly ever since. Their earning power has always been great, and the market value of their stocks has generally been higher than the book value. Table V , appendix E , page 319, which gives the capital, par value of the stock, and the bid and asked price of the shares for companies of New York, Chicago, Philadelphia, and Boston from 1895 to 1935, shows the high range of prices. The prices quoted on shares of New York companies, show a much wider range than in either Chicago, Philadelphia, or Boston. The New York prices range from $133 to $3,350 bid; the asked prices range from $130 to $3,500. The lower limit and upper limit in Boston ranges from $100 to $775; in Philadelphia, from $59 to $1,060; in Chicago the range is from $107 to $550. The highest prices from 1895 to 1935 appear in the May, 1907 quotations, but the same date a year later shows a marked decline—in some cases as much as $350 and $500, and one case (The Knickerbocker Trust Company) as much as $1,000. The markets of Boston, Philadelphia, and Chicago were never as active as the New York market, and in no case have the stocks of the trust companies of any of these cities ever reached the high prices attained by some of the New York stocks. For example, the shares of stock of the Farmers Loan and Trust Company; with a par value of $35, reached points as high as $1500 to $3500, for seven or eight years previous to the Panic of 1907. 48. There were months in which the range was wider than this, but the figures here refer only to those appearing in the Appendix for May of each of the five year periods.189 || The market value of the stock of trust companies taken as a whole averages much higher than the stock of either National 49 or State bankB. It would seem, therefore, that the rate of dividend plus the rapid increase in book value was a tempting inducement for investment, and may be given as a reason for the rapid increase in numbers of trust companies* It is not to be assumed that all ventures into the trust company field were successful. There are failures to be found in this class of institutions as well as any other; however, the number of failures, when compared with other banks, is very small. After all, the final test of safety of any class of banks is to be found in the record of insolvencies. The statistics on the number of failures of trust companies is not absolutely correct for reasons of laxity of 8tate laws already pointed out. The only statistics available are to be found in Bradstreet's reports and the Reports of the Comptroller of the Currency, and these include, for certain years, the failures of loan and investment companies. Another reason why they are not absolutely reliable and accurate is the trust companies in a considerable number of states where their development has not been large, are included among state banks. Therefore, any statement of failures up to 1910 or later, must necessarily be estimates. The statistics of the past fifteen years are very nearly accurate, and sufficiently reliable to use in 49. There were exceptions to this statement, notably, the shares of the Chemical National of New York are often sooken of as the "$5 000" shares, and the shares of the First National Bank of New York which are equally as high.190 50 comparative statements. By using the most accurate statistics available on trust companies, the following results have been tabulated. The following statistics are computed from Table XVII, Appendix I, page 234 , and Table XVIH Appendix 0, page 235, which gives the number in operation by rates and sections for the same years. The number of trust company failures during the period from 1892-1935 (thirty-three years) was 322 for the entire United States. During the same time 655 national and 2,347 state banks 50. The statistics appearing on the following pages and in the Appendix 8, page 233, come from Bradstreet's Reports, the Reports of the United States Comptroller of the Currency, and from Trust Companies of the United States. These three sources constitute the only statistics available on trust companies, except, of course, the reports as are put out by the State Superintendent of Banking of the various states. The statistics are not absolutely correct, however, they are very nearly correct, and by using the three as a check against one another, the following statistics have been compiled. (See also Appendix T, page 234 .) A very slight error appears in some of the columns, which accounts for the absolute lack of correspondence, however, the results were tabulated and found that the error affects the percentages in the hundredths of a per cent, which does not seriously invalidate the percentages for the use to which they are put. The a.uotations from the Comptrollers Reports are taken from Bradstreet's more frequently than they are tabulated by that office independently. The figures that come from"Trust Companies of the United States" are compiled from the reports from the office of the State Superintendent of Banking of various states. It is believed, therefore, that the statistics herewith presented and the conclusions drawn from them are sufficiently accurate as to warrant their use. The following study deals only with failures and does not include temporary suspensions of companies which may have again resumed operations.192 51 suspended operations. The number of trust company failures by 52 different geographical areas of the United States are as follows: Hew England States..................23 or 10.36% Eastern States ..................... 37 or 16.67% Southeastern and Southern States ... 79 or 35.58% Central States ............ 38 or 17.11% Rocky Mountain States ............. . 19 or 8.56% Pacific States......................26 or 11.61% 222 99.99% This gives an average of 6.7 failures per year for trust companies, which for national banks was 19.85 and for state banks 71.12. By comparing the total number of state and national banks and trust companies in operation with the total failures for the same, the following is the result: Number in Number of Per Cent of Failures Operation53 Failures to Operation State Banks . . . 19,330 2,347 12.15% National Banks . 8,709 655 7.51% Trust Companies . 2,904 222 7.64% From this it will be seen that the number of trust company failures 51. The number as given by Bradstreets is 197. The number as given by the Comptroller is 247. The number 222 is given in TableXVII, Appendix T, is the average of the two figures and appears to be nearly right; at least it is the most accurate amount that can be computed from the available information. 52. The states included in the geographical areas are: New England: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut. Eastern: New York, Pennsylvania, New Jersey, Maryland, Delaware, South and Southe&stern: Virginia, West Virginia, North Carolina, South Carolina, Florida, Georgia, Alabama, Mississippi, Louisiana, Texas, Tennessee, Arkansas, Kentucky. Central: Ohio, Indiana, Illinois, Michigan, Wisconsin, Minne- sota, Iowa, Missouri. Rocky Mountain: North Dakota, South Dakota, Nebraska, Wyoming, Montana, Colorado, New Mexico, Oklahoma. Pacific: Washington, Oregon, California, Idaho, Utah, Nevada, Arizona. 53. Number in operation includes the number of failures in all cases. Table XVill, p. 235, of the Appendix Ugives the number in operation by states and sections.19,2 1b practically the same as for national banks. This is very significant considering the fact that for twenty-two of the thirty-three years of the period under consideration, the trust companies, for the most part, were subject to no laws of regulation or supervision as were the state and national banks. The period from 1892 to 1925 naturally falls into three equal divisions, each having a major panic or depression, and the latter period (1914-1925) including the years since the Federal Reserve 8ystem has been in operation. By making a comparison of failures of trust companies to the number in operation for the three periods the following is the result: 1892 - 1903 19Q3 - 1914 1914 - 1925 Humber of companies in operation . . . Number of failures • Per Oeiit of failure to operation . . . 868 45 2,304 64 2,795 113 4.05$ 5.56$ 3.14$ This indicates that even though the number of trust companies in operation has increased rapidly, the number of failures is less than in the first period. It also indicates that the number of failures since the liberalizing of the National Banking laws has been slightly more than in the eleven years before even though the major panic of 1907 came in this period, which was the greatest retarding influence the trust companies ever experienced. The statistics presented thus far are for the country as a whole. By making a comparison of failures to number in operation for the different geographical areas, the results are as follows:Section Number of Number in 193 Per Cent of Failures Failures Operation to Operation New England States 23 316 7.27# Eastern 8tates 37 801 4.61# Southeastern and Southern States 79 817 9.65# Central States 38 728 5.22# Rocky Mountain States 19 110 1.72# Pacific States 26 132 1.97# From the statistics of failures by states it iB seen that 801 companies are in operation in the five Eastern States, of which Pennsylvania has the most, New Jersey is second, and New York 54 third. This section of five states furnished about 32 per cent of the total number of trust companies in operation or slightly 55 more than the Southeastern and Southern section of thirteen states. The Eastern States in the thirty-three year period had 37 failures or 16.67# of the total, yet considering the fact that they had 801 companies in operation, the percentage of failures to operation is only 4.61#, which is lowest for the first four groups of states which have the greatest number in operation. The Southeastern and Southern section of thirteen states has had the greatest number of failures, being 79 in thirty-three years, or 35.58 per cent of the total failures. This section likewise shows the greatest percentage of failure to number of companies in operation, being 9.67#, which is more than 2.0# higher than the Eastern section with nearly the same number of companies. This high percentage of failures in the Southern and Southeastern section may be partly 54. See Appendix J, p. 324 , for complete list by Btates. 55. Supra, p. 174, for banking power concentrated in the trust companies of these states.194 traceable -to their tardiness in regulation and supervision and the general lack of progressive measures in banking. The New England section has had twenty-three failures or 10.36 per cent of the total; the number in operation is not large, being more than 50 per cent less than the number in either the Eastern or Southern and Southeastern sections; this small number in operation gives the section a percentage of 7.27 per cent failure to number in operation. The Central section of states has had 38 failures or 17.11 per cent of the total. The total number of companies in operation being 728 gives a percentage of failure to operation amounting to 5.22 per cent. The least number of failures as well as the smallest percentage of failure to operation is found in the Rocky Mountain states. In that section during the thirty-three years, 19 failures are recorded, or 8.56 per cent of the total. The number of companies in operation has not been large—the number being 110—which makes the percentage of failure to number in operation the small amount of 1.72 per cent. The record of the Pacific section is nearly as good as the Rocky Mountain section, where 26 failures are recorded as against 132 in operation, or a percentage of failure to operation amounting to 1.97 per cent. The number of failures during the three Panics is likewise evident from the statistics of failures by stateB. (See Appendix, T , page 234 , for complete record of failures by states) 57 From the Panic of 1893 approximately 18 companies ceased operation. 56. Supra, p.129 , for peculiarities in banking laws in this Section 57. There were 172 Btate banks and. 65 national bank failures during195 CQ The Panic of 1907 caused approximately 25 failures, and the 59 depression of 1921 and 1922 about 61. If the four panic years are eliminated, the average number of failures per year would then be about 4.5 which is a remarkably small number of failures. Aside from the four years of panic, the greatest number of failures for any one year was 12 which was for the year 1924, and after the laws permitting trust companies to operate, had been made less exclusive. The small average of failures per year would indicate 60 that the management of these concerns, as a whole was very able. Hence it appears that the trust company, judging from the failures of the past thirty-three years, has been remarkably stable. The reason for this stability appears to be no fault of the laws which regulated and supervised trust companies in their 58. There were 42 state banks and 24 national banks failed. 59. During the depression of 1922-23, 569 state banks, and 61 national banks failed. However, the numbers for the years immediately following 1922 show the following number of failures; Year S£ SiJSL-JEIflSLS»« National Banks 1923 202 37 1924 699 138 1925 421 102 1926 470 77 See Appendix V, p. 236, for failures in national and state banks and trust companies together with liabilities of each, 1892-1925. 60. At the bottom of Table X7HJ Appendix U, p. 235, the percentage of failure to number in operation for each year is calculated. Here it is seen that the percentagectf failure to number in operation was less than 1 per cent for twenty-five of the thirty-three years. The same years show the following percentages; Year Percentage of Failure to Humber in Operation 1893 5.80 1908 1.64 1921 1.08 1922 1.46 (The Panic of 1907 shows up in the figures for 1908.)196 activities, for it has been pointed out that trust companies carried on in early years, relatively free from laws, while in later years they have been relatively lax and ununiform. The cause for their stability, therefore, would seem to be attributable to the management. The multitude of opportunities of investment which were available to those in charge, because they were not restricted by laws, must have been no small temptation. The chances are that 61 they were resorted to, judging from the earnings and dividends, and this together with the fact that their failures are smallest of any of the financial institutions, would lead one to believe that 62 the management has generally been very able. It has been pointed out in the course of the preceeding pages that modern industrial society has developed the trust company not only as an agent fuar facilitating the distribution and investment of capital, but for the purpose of facilitating exchange as well. In this respect it is no different from a commercial bank. It has been shown that in early times there was a difference between the two institutions, but in the course of time the tendency has been for any distinction to disappear.63 Conditions 61. 8ee Graph XII, p. 186-b, Appendix Q, Table XIV. 62. "TruBt company failures have been few and far between, and where they have occurred they can be traced to a disregard of sound banking principles and to assumption of unwarranted risks." Kirkbride, Sterrett, and Willis, "The Modern Trust Company," p. 5. 63. This tendency is not true in England., New Zealand, and Australia for examples where the separate character is recognized by law and custom. Supra, chftpt. IV, p. 118.197 ] in the United States seem not to have fostered an independent development "but have rather tended to fuse the functions of "banking, investment; and trust. Hence, the Federal Reserve Act has provided for the performance of fiduciary functions by national banks. When the Federal Reserve System was first projected it was not intended to include in the system banks or companies organized under non-national charters. Likewise it was not in the original draft of the Federal Reserve Act to extend powers of national banks beyond those required for ordinary commercial banking. However, after it had been resolved to admit the trust companies to membership in the Federal Reserve System, the logical consequence was to extend fiduciary powers to banks. The first provision was that national banks might be granted powers of trustee, executor, administrator and registrar of stocks and bonds in those states where such action on the part of national banks was not opposed to state or local law. Difficulty at once arose over 65 this grant, which was only settled by a decision of the Supreme Court of the United States in which it was definitely held that Congress had power to confer trust functions on national banks 64. There are, in various states, a few cases of companies doing only fiduciary business with little activities of a banking nature. However, the modern trust company as a rule includes as the two chief parts in its organization the banking and trust department. 65. Supra, chapt. IV, p. 152.66 if bo disposed. Pursuant to this opinion an amendment was passed September 26, 1918, which gave the Federal Reserve Board at its own discretion power to grant fiduciary powers as it might see fit. Consequently, the status of trust companies in the Federal Reserve System and fiduciary power grants to national banks is as follows: The thirteenth Annual Report of the Federal Reserve Board for the year 1926 lists 1,354 state banks and trust companies as active members of the Federal Reserve System. Of the number, 471 had the word "trust* as a part of their titles; their distribution according to districts is as follows: District No. 1 ......... 38 District No. 2 .........100 District No. 3......... 70 District No. 4 ........ 59 District No. 5......... 20 District No. 6 ......... 31 District No. 7 ......... 44 District No. 8 ......... 52 District No. 9 ......... 11 District No. 10.......... 7 District No. 31 ........ 19 District No. 12 ......... 20 Total ...........471 The difference between this number and the total for both classes of institutions leaves approximat ely 883 for the number of state banks having joined the Federal Reserve System. 66. Supra, chapt. IV, p. 153. First National Bank vs. Fellows, 244 U.S. 416. The exercise of fiduciary powers by national banks was contested in a number of states; they are as follows: Illinois: People vs. Russell, 119 N.E. 617, 283 111. 520. Missouri: Missouri ex rel Burns National Bank vs. Duncan. New York: In re Mollineaux 179, New York Supp. 90. Connecticut: Hamilton vs. State, 100 Atl. 54. Wisconsin: Appeal of 8tanchfield, 178 N.w. 310. Pennsylvania: In re Turner’s Estate, 80 Pa. Super 88.277, Pa. 110. 67. Thirteenth Annual Report of the Federal Reserve Board, pages 513-60 for the year 1926.199 Taking certain of the larger cities of the country, the number of trust companies that have joined the Federal Reserve System, and the number of national banks that have applied for fiduciary powers under Section 11 (k) of the Federal Reserve Laws is as follows! City Number of Trust Companies Belonging to the Federal Reserve 8vstem Number of National Banks Having Fiduciary Powers Boston 9 9 New York 21 19 Philadelphia . 14 24 Cleveland .... 6 3 Chicago 9 10 Detroit • • 1 Saint Louis .. 18 6 New Orleans .. 7 1 8an Francisco 4 4 Los Angeles . . 3 4 During the year 1926 some 227 applications were made to the Federal 68 Reserve Board for permission to engage in fiduciary powers, which made the total number of permits granted up until December 31, 1926, 2,103. The total number by districts, together with the total number of national banks in each district is as follows: TABLE X Num- ber of Dis- trict Federal Reserve . District Total Number of National Banks Number Authorized to Exercise Trust Powers Dec. 31f 1226 Number Exercising such Powers Dec. 31. 1926 1 Boston . 377 197 101 2 New York ........ 755 296 177 3 Philadelphia .... . 685 238 170 4 Cleveland . 744 155 110 5 Richmond ....... . 531 165 96 6 Atlanta . 381 113 56 7 Chicago • 1,028 344 163 8 St. Louis 491 137 69 9 Minneapolis .... . 702 95 27 10 Kansas City .... • 975 171 71 11 Dallas . 727 83 35 12 San Francisco .. • —57Q, - IP.9 64 Total ...... 7,966 2,103 1,139200 Of the 2,103 national banks having permission to exer- . . 68 * * cise fiduciary powers, 1,139 were exercising one or more of the 69 powers authorized. It will be noted from the table that nearly one thousand (964) national banks having permission to act in a fiduciary capacity, do not have any fiduciary activities. This might be due to a number of reasons, the most likely of which is the lack of business of a fiduciary nature, which may be due to other and more powerful trust companies being already in the field, or the smallness and unprofitableness of the business. It has always been a question of great concern whether trust companies should apply for membership in the Federal Reserve system. Many of the strongest and most ably managed trust companies in the country are members of the system, having joined it at the time of its inception or in subsequent years; however, many more are not members of the Federal Reserve System. No doubt the 68. Thirteenth Annual Report of the Federal Reserve Board for the year 1926, pp. 27-8. 69. It will be recalled that the Federal Reserve Act, sec. 11 (k), gives those national banks applying for fiduciary powers, one or all of the following list of powersi *l) Trustee (5) Guardian of estates ,2) Executor (6) Assignee ,3) Administrator (7) Receiver 4) Registrar of stocks and (8) Committee of estates of bonds lunatics (9) Any other fiduciary capacity in which state banks, trust companies or other fiduciary corporations which come into competition with national banks are permitted to act under the laws of the state in which the national bank is located. The tendency is for national banks that ask for fiduciary powers to make the list include all the nine before mentioned; however, there are many cases of banks asking for the first four only, and also cases of banks asking for one specific power, of which the fourth, Registrar.of stocks and bonds, is common. The complete list of all banks and the powers granted is to be found in any issue of the Federal Reserve Board Report.201 war had something to do with influencing the companies to join the system, at least at such an early date; now that all extraneouB influences growing out of the war have been removed, the question of trust company membership in the Federal Reserve is less complex. Considering it as an ordinary business proposition, trust company membership in the Federal Reserve appears to be a matter depending almost entirely on the amount, the scope and character of the business the trust company is doing or expects to do. The Federal Reserve System was designed as a commercial banking system whose purpose it is to maintain commercial banking on a basis of soundness and liquidity. Its advantage is obviously to those institutions which have large demand deposits and therefore require adequate and sure reserve protection. Hence, the decision of the trust company in choosing as to whether or not it should join the Federal Reserve System, should depend almost exclusively on the extent to which it expects to engage in commercial banking, lending on commercial paper, carrying large demand deposits and so on. The Federal Reserve is of no service in connection with exercising strict fiduciary functions. Some prestige may be gained by a trust company simply belonging to the System, which may have some advertising value, but it appears to be expensive advertising for the trust company must meet the same 70 requirements as any bank which is a member of the system. If a trust company does, or expects to carry on extensive banking operations, the same argument may be applied to it 70. Such as subscribing to stock of the Federal Reserve Bank to the extent of 6 per cent of its own capital stock and surplus, etc.208 || as to any bank in behalf of membership in the Federal Reserve System. However, if the company is engaged in a limited amount of banking, there appears no definite reason for membership; no few companies are in this position, and it is true that "doubtless there are many trust company members which today would be as well off out of the system as in it, while the system would be as well off without them."^ In the foregoing pageB, the evolution and growth of trust companies have been pointed out. The actual growth of trust companies compared with state and national banks shows that the trust companies, which are but few in number, relatively speaking, have equaled and surpassed in many cases, the state and nationally chartered institutions. The fact that the percentage of trust company failures is smaller than either the state or national bank failures, even though the trust companies have been under practically no supervisory laws, has been emphasized. The status of trust companies under the Federal Reserve System and the status of national banks with respect to exercising fiduciary powers, was presented in the latter part of the discussion, which brings the study down to date, both from a legal and a banking point of view. The last named feature was the final gesture in liberalizing national bank laws and regulations to put national banks on an equal competitive basis with other banking institutions, which seem to have profited from having less rigid, requirements. The 71. Willis, H.P., "The Modern Trust Company," by Kirkbride, Sterrett and Willis. Sixth edition, p. 51.203 liberalizing of national bank laws appears to have been no panacea for eliminating the advantages which the trust companies always held over other financial institutions. Some business of a fiduciary nature is being done by about 1,000 of the 8,000 national banks. This appears to have made no perceptible difference in the statistics of growth persented for trust companies for the past fifteen years, and, on the other hand, it seems, to have made no perceptible increase in the business of national banks. The trust companies in certain of the larger financial centers, e.g., New York, Philadelphia, Boston, Cleveland, St. Louis, are firmly entrenched and doubtless will continue to be the largest of the financial institutions in those places, even though perhaps not the most numerous.CHAPTER VI CONCLUSIOI205 CHAPTER VI CONCLUSION The present study has been undertaken in the hope that it might serve to emphasize that trust companies deserve consider- in ation in their banking development as well as/their fiduciary development. Heretofore, they have been treated mainly as a fiduciary. This study presents the growth of the banking activities of trust companies from an historical and chronological point of view. It was pointed out that the trust company as a financial institution has been more evolutionary in its development than any other type of financial institution. It began not as an institution such as is generally known today, but aB a corporation which was primarily chartered to carry on insurance business or annuity business. To these corporations the service of a fiduciary was only an adjunct to their regular business. By a gradual process of elimination, which seems to have come from a trial and error process, the business of insurance and annuity became of less importance being supplanted by the business of trusty which appears to have arisen mainly through necessity. The natural and logical ally of purely fiduciary companies was in a field less foreign to fiduciary business than was fire or life insurance or annuity business. This natural ally was the banking business. The trust companies had funds in their possession upon which they began paying interest. Thus, savings bank functions became a part of the activities of early trust companies;206 likewise, the business of safe deposit as such, being a forbidden activity to chartered banks, was also a closely associated kind of business in protecting as well as preserving funds and properties. Hence safe deposit business was made a part of trust company operations. These activities of trust companies were neither granted nor denied by the laws which created them; hence, in the Absence of both grant and prohibition they were added to the activities of the corporate fiduciary. During the years in which the trust companies were gradually expanding to include banking, the first named activities of insurance and annuity became completely divorced from trust companies. This natural expansion to include banking was done, for the most part, in direct contradiction to the charter laws of the trust companies, for the laws generally included the provision that “this grant shall not be so construed as to allow any banking business or privileges whatsoever." The records show that banking business was carried on. A similar record may be found of trust companies paying interest on deposits and cashing checks. These activities were clearly evident before the Civil War, but not extensive for the number of companies was not more than thirty-five. The middle of the nineteenth century marks a time in the development of trust companies, when all things seem to conspire to make them an active economic factor in American finance. The National system of banking and the National system of currency came shortly after the middle of the century; the need which called them into being was National in scope; state banks had proved inadequate in the years prior to 1863 and one of theAPPENDIX B - TABLE II Table showing Capital Stock,Deposits, and Dividends together with Taxes Paid for State and Local purposes by Trust Companies in New York from March 15,1382 to March 15,]*87* Name of Company Location Caoital Stock DividBnds Pd. Due Depositôrs in oast 5 yrs Jan. 1,1887 1882-1887 Taxes paid Mar 1882 - Mar. . For State Average tax For local Purposes Pd. per year purposes 18*7 Average per yr. Local Purposes. American Loan and Trust Co. New York City 1,600,000 4,581,936 105,000 1,750 350. 1,508.75 38,94.9.94 301.75 Brooklyn Trust Co. Booklyn 600,000 8,485,926 252,000 6,803.75 1,360.75 7,789-99 Buffalo Loan and Trust Co. Buffalo lo7,000 691,95« 10,275 822 184 6,016.75 1,203.35 Central Trust Co. New York City 1,000,000 17,099,661 495,000 12,500 2,500 8,619.23 1,723.85 Equitable Trust Co. New York City 1,500,000 None None 517-33 103.46 356.52 71.30 Farmers Loan and Trust Co . New York City 1,000,000 20,265,193 1,000,000 25,000 5,000 23,374.24 4,674.85 Knickerbocker Trust Co. Brooklyn 300,000 785,785 None 660 132 2,074.98 414.99 Long Island Loan and Trust Co. New York City 500,000 i,248,322 4,809 39,000 1,933.75 396.75 1,314.16 262.83 Manhatten Trust Co. New York City i5,oco None 2,017.50 .403.50 14,852.47 2,970.49 402.61 Mercantile Trust Co. New York City 2,000,000 19,280,672 800,000 19,375. 3,875- 2,013.04 Metropolitan Trust Co. New York City 1,000,000 4,182,666 None 8,885.50 1,777-10 562.40 II2.5O Mutual Trust Co. New York Guaranty and Indemnity Co. New York New York City City 50,000 100,000 362 None Nope 105,419 9,75«-«9 751.78 1,037.65 33,894.07 207.53 6,778.81 New York Life Insurance and Trust Co. New York City 1,000,000 14,152,612 1,356,000 31,250 6,250. 59,377.27 11,875-^5 Title Guaranty and Trust Co. New Y8rk City 800,000 None None 1,841.37 368.25 3,112.36 622.47 Union xrust Co. New York City 1,000,000 23,129,876 500,000 14,250 2,450. None l4,500. United States Mortgage Co. New York City 1,000,000 None None 4,082.46 816.49 72,000 United States Trust Co. New York City 2,000,000 31,206,770 1,350.000 58,750 11,750- 156.108.43 31,221.68 Total $15 137,000 #146,085,925 #$,006,694 #193,999.55 #360,372.25 Total Taxes paid by Trust Companies for five years .............. . . . -55^,371*81 Average per year....................................................110,874.36 The aggregate amount of taxes paid by State Banks of deposit and discount for the same period.....................................2,243,711.61 Average per year................................................. 44-8,742.32 Average Capital employed ................................. .21,541,900. Annual Average of deposits .................................... 110,543,389. Annual Average of dividends.................................... 1,536,299- •Special Report made by W. S. Paine, Superintendent of the Banking Department, State of New York, to the Senate of New York State, March 15,1887-APPENDIX C TABLE III. Taxes Paid by New York Trust Companies in Various Years from 1334 - 1900 Name of Trust Company Capital Stock 1333 Taxes Paid Per Year* ' 'i T825 1335 1338 I35O 1895 " 1900 Date of Charter 1. American Trust Co. 1,000,000 730.00 1,125*00 l,if25.ÒÒ 1,725.00 I872 2. Atlantic Trust Co. 500,000 1,762.50 1,500.00 1,500.00 1387 3. Brooklyn Trust Co. 1,000,000 goo 1,000.00 1,500.00 1,500.00 3,250.00 if,000.00 5,000.00 if, 000.00 1866 if. Buffalo Loan and Trust Co. 137,000 205.50 2O5.5O 25O.OO 217.33 205.00 300.00 300.00 1381 5. Central Trust Co. 1,000,000 1,750 2,000.00 2,500.00 3,500.00 if,750.00 8,750.00 12,500.00 12,500.00 I873 0. Commercial Trust Co. 37.5O 37.50 7. Equitable Trust Co. 1,500,000 ÌJ-27 • 33 if 5.00 22.5O 22.50 lif.25 13.ifl 13712 3. Farmers Loan and Trust Co. 1,000,000 5,000 5,000.00 5,000.00 5,000.00 6,250.00 6,250.00 7,500.00 7,500.00 1822 9. Knickerbocker Trust Co. 500,000 660.00 1,050.00 1,356.00 1,125.00 1,625.00 187lf 10. Manhattan Trust Co. 1,000,000 225.OO , 759.65 1,330.00 1, gif 5.00 714.00 1371 11. Mercantile Trust Co. 2,000,000 000 i|-,000.00 if, 000.00 if,000.00 if,000.00 4,000.00 5,000.00 6,000.00 1363 12. Metropolitan Trust Co. 1,000,000 1,725 1,300.00 1,725.00 1,912.50 2,610.00 1,500.00 2,000.00 2,500.00 1331 13. Mutual Trust Co. 50,000 75 37.00 1363 lif. New England Loan and Trust Co. 3.00 3.00 lifO.OO lifO.OO 15. New York Life Ins. and Trust Co .1,000,000 6,250 6,250.00 6,250.00 6,250.00 6,250.00 6,250.00 7,500.00 3,if59.34 1830 16. Title Guarantee and Trust Co. 1,000,000 263.35 1,142.32 1,725.00 3,900.00 1882 17. Union Trust Co. 1,000,000 2,375 2,125.00 2,500.00 3,000.00 if,750.00 5,000.00 6,000.00 3,000.00 I36if IS. United States Trust Co. 2,000,000 12,500.00 12,500.00 12,500.00 12,500.00 16,000.00 20,000.00 1853 ♦These companies are listed with "Gas,Mining and Miscellaneous Companies'1 in the Report of the State Treasurer for the given years. (Also in the Comptrollers Reports) This is not intended to be a complete list of trust companies in New York. These have been chosen for basis of study and comparison. The remainder are to be found in the Reports of the Superintendent of the Banking Department. ^Tax based on dividends and capital only. 2As Traders Deposit Company.207 important reasons why the national system was projected was to eliminate the manifest weakness of the state hanking system. The new national system, which came at a time when conditions were hardly normal, was tempered with conservatism, which, to a degree, may he said to have retarded the natural growth and service of the system. The prohibitions of powers to national hanks were numerous. At the same time the nation was making rapid strides in expansion; population and wealth were increasing; commerce and industry were expanding to a remarkable extent. During the period of expansion the trust companies began to fill in the services which were needed in commerce, industry and finance, which were prohibited to national banks by law. The trust companies became administrators for funds and property; they became agents and bankers for commerce and industry; they were conservators for the large and small saver and investor; they were factors in the distribution and investment of funds; they were guardians of both small and voluminous wealth. In fact they supplied the services which were prohibited to national banking institutions, and, at the same time, did all the things a national bank could do and more. Hence the trust company as a powerful factor in finance today may be said to have arisen and reached its power as a result of economic necessity. It has been pointed out that trust companies always enjoyed a greater freedom of enterprise than accorded to any other financial institution. They were not regarded as banks even though they did every banking service except issue. They were not regarded as savings bankB even though that was one of the219 APPENDIX E TABLE V TABLE SHOWING THE CAPITAL, PAR VALUE, BID AND ASK PRICES OF TRUST COMPANY SHARES IN NEW YORK, CHICAGO, PHILADELPHIA, AND BOSTON,- IN FIVE-YEAR PERIODS, ALSO 1907 AND 1908, FROM THE FIRST AVAILABLE REPORT IN MAY,1895,TO MAY, 1925. Name of Company Capital Par Value of Stock NEW YORK Brooklyn Trust 1,000,000 100 Central Trust 1,000,000 it Farmers Loan & Trust 1,000,000 25 Knickerbocker Trust 1,000,000 100 Manhattan Trust 1,000,000 30 Mercantile Trust 2,000,000 100 New York Life Insurance & Trust 1,000,000 it United States Trust 2,000,000 !! BOSTON American Loan & Trust 1,000,000 100 Beacon Trust 200,000 Î! Old Colony Trust 1,000,000 If Puritan Trust 200,000 U May,1895 Bid Ask May,1900 Bid Ask May,1905 Bid Ask May,1907 Ask Bid May,1908 Ask Bid May,1916 Ask Bid May,1915 Ask Bid May,1920 Ask Bid May,1925 Ask Bid 400 450 410 420 420 435 440 460 390 410 415 435 470 (Capital ' ) 500 515 710 730 1015 1030 2075 2125 2200 2250 2025 2100 1500 — 1030 1040 975 985< 12,500,000, I 390 400 724 730 700 750 1375 1425 1465 1490 1310 1350 1050 1100 1775 1825 1100 (5,000,000) 400 420 439 441 160 162 400 --- 1050 --- ; 1150 1400 350 400 325 335 —- — — ... — 122 130 365 — 440 505 470 490- (par,100) 350 400 390 410 ... — — — ... — 325 --- 800 mmwmmm 990 1010 850 775 825 740 ... — — 300 — Consolidated 710 --- 1400 1450 1050 1090 1000 1000 1100 1120 940 960 720 740 Consolidated 860 1575 1500 1530 1325 1350 1080 1100 1225 1250 1040 1060 830 850 1575 1625 153| 154 (Capital) "/ ry /N/N \ 130 140 275 340 340 350 350 355 (Capital) 400 405 375 385 99 100- 120 175 200 185 185 200 210 ... 225 250-(3,000,000)317 325 270 275 170 175 (300,000) 350 400 750 775 750 700 750 ... 225 260-(7,000,000)287 390 264 286 100 (Capital) (300,000) 107 128 200 — 200 --- 200 ... ... — - — Consolidated Consolidated CHICAGO American Trust & Savings 1,000,000 100 107£ 109 113 Illinois Trust & Savings 2,000,000 n 345 350 650 Merchants Loan & Trust 2,000,000 If 265 270 320 Northern Trust 1,000,000 II 190 200 300 Union Trust 500,000 ft 200 215 300 PHILADELPHIA Equitable Trust 500,000 59 60 Girard Trust 1,000,000 315 « —«. Guaranty Trust & Savings 1,000,000 196 --- Union Securities & Trust 1,000,000 125 ... --- Realties Title & Trust 1,000,000 .. «. — — _ Pennsylvania 2,000,000 — - --- (Capital) 115 276 283 248 252- (3 ,000,000) 204 206 ■JU Jm» KJ mm mm mm 605 615 575 582- (5 ,000/300) 490 500 324 389 398 389 395- (3 ,000 poo) 332 336 350 500 550 390 400 (1 o o o 125 140 200 250 Ä “ •* * mm — 100 125 115 112 - — 790 mm mm mm 760 163 --- 715 219 — mm mm 200 500 --- 230 125 ■B W W 120 102 122 225 — — 218 125 --- 168 f 545 mm 480 490 --- 551 ! Consolidated Consolidated 507 518 480 482-(5,000,000)380 390L(consoli-)-477 481 422 426 440 443-(5,000,000)380 390)( dated, ) 320 325 225 (2,000,000)330 (5,000,000 ) 397 325 (Capital ) 330 402 325 ... (2,000,000)300 101 108 Consolidated Consolidated «.«»«ft 890 --- 909 802i- 127t 1060 mm mm mm 170 --- 165 166 mm mm mm 130 — -- 135 101 181 mm mm mm 232-g 556 Ju|| ^ m 257 579 403 570i 550 715Ì* Source: Commercial and Financial Chronicle for May of each year ?iven. May, 1895 was first issue of the magazine and has the first systematic report on Bank and Trust Company Stock)208 earliest activities to be engaged in by trust companies. Generally speaking they were not subject to legislation until after 1900, which gave them well over 30 years of unhampered banking enterprise. While this growth in trust companies, both in numbers and resources, was going on the national and state banks were feeling considerable competition. The banks perhaps would not have objected to the competition, but they complained that it was not entirely fair since they, as banks, had to meet with certain legal requirements to which trust companies, who were doing the same business as bankq did not have to conform. The main complaints of the banks were: that trust companies were not subject to the same reserve requirements; that the trust companies paid less tax than the banks; and that supervision by state and national laws was not applicable to trust companies. An inquiry into the charges would indicate that they were not unfounded. In matters of reserve requirements, the statistics show that the reserves of trust companies for a period of fifty-two years from 1875 to date average about 5 per cent, while for certain periods of years within the fifty-three years, the rate is as low as 2 per cent; in certain of the cities it was found that the rate was even lower than 2 per cent. The reserves of trust companies were found to be very low befo* a panic. The fact that trust companies did not have their funds tied up in reserves provided an added source of profit; while the banks, which were obliged by law to carry a minimum reserve at all times, were placed in a precarious position. Thus it appears that the question of reserves furnished a legitimate cause for complaint by209 the banka. The charge that trust companies were given an advantage over banks in matters of taxation is equally evident. The banks were taxed under laws applicable to banks, while the trust companies which were doing the same kind of business as the banks were exempt from bank taxation, and subject only to a tax on dividends and capital; this meant a very great discrimination in favor of the trust companies; the records show that the total amount of tax paid by the New York City trust companies for 5 years ending with 1887, amounted to nearly the same as the amount paid by state banks each year. This was manifestly unfair in view of the fact that the trust companies for the same years show resources nearly as large as the state banks. Another evidence of discrimination appears from the fact that trust companies paid the same amount of tax for as many as six or eight years, while their resources and dividends were increasing steadily. The charge that trust companies were not subject to state regulation or supervision was equally well founded. The legislature and courts seem to have taken for granted that trust companies were not doing a banking business. Thus, in years when banking was becoming the chief part of their business activities, they were subject to no regulation nor supervision; they made no adequate reports and were not examined in their banking operations. This, the banks claimed, was a source of danger to sound banking. It would appear, therefore, that the charges of the banks were well founded and deserving of attention on the part of the legislatures. Relief from legislative sources came slowly and notAPPENDIX G 221 TABLE VII TOTAL RESERVES AND CASH RESERVES OF TRUST COMPANIES 1875—1926 Year Number of Companies Deposits and Due to Banks Cash and Due from Banks Percentage Total Reserve Percentage Cash Reserve 1875 35 (000 omitted) 85,147 (000 omitted) 10,856 12.8 10.6 1876 38 87,969 8,671 9.9 3.4 1877 39 84,549 10,826 12.8 3.3 1878 35 73,658 8,399 11.4 3.9 1879 32 76,013 8,727 li.5 3.6 1880 30 90,158 7,536 8.4 3.8 1881 31 111,905 12,454 11.1 4.0 1882 32 144,988 11,492 7.9 2.4 1883 34 165,645 13,431 8.1 2.3 1884 35 189,507 21,030 11.1 2.4 1885 40 188,615 33,499 17.7 5.3 1886 42 214,255 35,804 16.7 9.2 1887 58 245,797 35,617 14.5 7.0 1888 120 259,925 39,580 15.2 7.7 1889 120 302,626 50,320 16.6 8.4 1890 149 339,319 53,168 15.7 5.9 1891 171 357,540 56,430 15.8 4.6 1892 168 415,431 77,575 18.7 5.5 1893 228 488,934 75,568 15.4 4.6 1894 224 478,055 125,010 26.1 7.3 1895 242 533.756 128,482 23.2 6.6 1896 260 592,617 108,314 18.3 4.9 1897 251 576,598 118,139 20.5 5.2 1898 246 665,488 118,317 17.8 3.4 1899 260 837,510 154,868 18.5 3.0 1900 290 1,031,735 219,488 21.3 3.0 1901 334 1,278,849 217,207 17.0 2.0 1902 417 1,537,476 264,819 17.2 2.2 1903 531 1,711,485 304,409 17.7 3.2 1904 585 1,775,499 422,876 24.9 4.0 1905 683 2,164,645 393,880 18.2 3.5 1906 742 2,162,228 369,199 17.0 4.0 1907 794 2,229,495 368,738 16.6 5.3 1908 842 2,029,978 515,850 25.4 6.7 1909 1079 3,112,588 851,821 27.4 9.6 1910 1091 3,260,264 754,147 23.1 9.3 1911 1251 3,615,224 909,194 25.2 8.8 1912 1410 3,974,516 939,489 23.6 - 9.1 1913 1515 3,863,253 885,751 22.9 9.3 1914 1564 4,271,438 999,055 23.4 9.1 1915 1664. 4,591,115 1,089,763 23.7 8.0 1916 16061 5,723,504 1,289,946 22.5 8.5 1917 16082 3 6,405,532 1,319,681 20.6 7.8 1918 1669 6,479,967 1,268,276 19.6 4.8 1919 1377 6,148,736 1,191,795 19.3 6.0 1920 1408 6,510,217 6,074,091® 1,220,762 18.8 5.6 1921 1474 1,183,696 19.9 7.2 1922 1550 6,847,475 1,328,382 19.4 6.7 1923 1643 7,575,692 1,355,516 17.9 5.9 1924 1664 8,423,679 1,697,344 20.2 8.0 1925 1680 9,403,394 1,912,184 20.3 7.8 1926 1656 9,748,815 1,893,908 19.4 7.9 1. Loan and Trust Companies of Virginia, North Carolina, South Carolina, Tennessee, Idaho, and Nevada included with statistics for State Banks. 2. Loan and Trust Companies for eight states included with State Banks. 3. Includes dividends unpaid and postal savings.APPENDIX H TABLE VIII 222 Table Showing Growth and Present Status of State Bank and Trust Company Supervision State Banks Trust Companies State Year Reports Year Examinations Year Reports Year Examinations Required Authorized Reauired Authorized Alabama Arkansas 1903 1903 1903 1903 Arizona 1897 1897 I89I 1901 California 1878 1878 1891 Colorado T.I 1?0J 1891 1907 Connecticut ta) I872 1872 Delaware 1903 1903 1903 1903 Florida 1869 1889 IS69 1889 Georgia 1891 1889 I894 1889 Idaho 1905 1905 1905 1905 Illinois (a) I887 1887 1887 Indiana (a; I873 1893 1393 Iowa I860 1873 190*1- X904- Kansas Kentucky 1891 1869 I891 1901 1897 1901 Louisiana Maine 1882 I898 1882 1883 1898 1883 Maryland WO I898 189 2 1892 Michigan w I887 I889 1891 Minnesota Mississippi \a) 1888 I878 1883 1897 1883 Missouri 1887 1895 1395 1395 Montana Nebraska 1887 1387 1895 I8S9 I887 1887 New Hampshire (a) (a) 1889 1889 New Mexico 1884 1903 1903 1903 Nevada 1907 1907 1907 1907 New Jersey (a) I889 1889 W* New York (a) 1884 I874 North Carolina 1887 I889 1887 1889 North Dakota 1890 1890 1397 1397 Ohio (a) 1908 •1377 1908 Oregon 1907 1907 1907 1907 Oklahoma 1.897 1897 1901 1901 Pennsylvania (a I891 I891 1819 Rhode Island (a) 1906 1908 1877 1906 1908 South Carolina 1906 1906 South Dakota Tennessee I891 (a) 1891 1395 1905 Texas 1905 1905 1905 1905 Utah 1888 1888 I890 1898 Virginia Vermont 188*1- 1910 189*1- 1878 1910 1874 Washington 1886 1907 1886 1903 West Virginia 1.891 1891 I891 1891 Wisconsin (a) 1895 1885 1395 Wyoming 1888 1888 1903 1903 (a) Antebellum. •Compiled from National Monetary Oomàission*8 Report, Document 659210 until after many heated controversies arose, some of which brought on complications which were national in scope, notably the Panic of 1907. The complaints over matters of taxation and supervision have been adjusted at various times as late as 1921, but not until after trust companies had reached such a place in their development, that taxation as banks would make little difference, and supervision by states a welcome addition. The result is that many states legislate for trust them companies separately, while the majority subject /t° the same laws as are applied to state and national banks. With the advent of thè Federal Reserve System the laws applicable to national banks have been so modified as to permit national banks to do anything trust companies may do, while trust companies are permitted to join the Federal Reserve System and have the same privileges and protection accorded to national banks by the Federal Reserve and National Bank Acts. This brief resume of the development of trust companies will serve to give some idea of what has transpired in the life history of the institution which, in age, has passed the century mark. The significance of their growth has been great; they have rendered definite economic services among which are conservation of wealth in many forms, and in facilitation of exchange. The extent to which they have served in this purpose is emphasized by their remarkable growth. The growth has been steady and progressive. Each year sees a remarkable increase over the former, until at the present time a comparatively small number of trust companies holds one-third of the total banking resources of all211 "banking institutions. This means a great concentration of power in the hands of a relatively small group. The significance of this power is seen when one considers the situation in different cities. In New York City trust companies are greatly outnumbered by banks of discount and deposit, yet the deposits and total resources of trust companies show a much larger total. In Cleveland, Philadelphia, St. Louis, Boston, and certain others of the larger cities, the trust companies are more powerful than any other banking institution. With such financial power being concentrated as it is in a small group of institutions created under State laws, a great burden is placed on the states in safeguarding the creditors from abuses which might arise from such a monopoly power. The record of failures of trust companies indicates that the management has been able, but the question arises, may not this skillful management be applied to making a dangerous banking monopoly. This supposed danger is not so significant, in the estimation of the writer, as the fact that the growth and power of trust companies seem to threaten the Federal Reserve System. It has been pointed out that the number of trust companies which belong to the Federal Reserve System is not large, while the largest and most influential companies are not members, leaving the membership to be taken up pretty largely by the smaller and less consequential companies. The result is, that the Federal Reserve System loses a very great asset in the trust companies;and, at the same time, the uniformity, which was hoped to be obtained in the Federal Reserve System, receive a very severe check. The liberalization of National bank laws to permit national banks to engage in fiduciary business212 seems not to have made a very material difference on the statue of National hanks in the Federal Reserve 8ystem. The trust companies are firmly entrenched as institutions performing a number of varied services which rightly characterize them as "department stores of finance." They represent, as Comptroller Ridgely once said, "the highest application of the principle of „1 credit and confidence to the relation of man to man and business." Thus, representing as they do, practically all kinds of public confidence, conservatism in operation is manifestly paramount. It has been pointed out that the most characteristic thing about the laws applicable to trust companies is their absolute lack of uniformity. Naturally, absolute uniformity would be equally as undesirable. Uniformity would be desirable, but owing to the diverse economic, political and social conditions existing in various banking communities, the possibility of absolute uniformity is precluded. It is not the purpose of this study to set forth a plan which would be universally applicable; on the other hand an attempt has been made to show that extremes exist, and existing as they do, the burden of "conservatism" or careful management is shifted to those in charge. It would appear from what has transpired in the past that trust companies will continue to grow at an even greater rate in the future. From study and interview it is concluded that 1. Ridgely, William B., Speech delivered to the Trust Company Section of the American Bankers’ Association, September 13, 1904. Proceedings cited in the Commercial and Financial Chronicle, Bankers Convention Supplement, 1904-05.APPENDIX K 225 DIGEST OF STATE LAWS FOR TAXATION OF TRUST COMPANIES, NATIONAL AND STATE BANKS State Measure of Franchise Tax on Trust Companies Rate of Tax Measure of Tax on National and State Banks Rate of Tax Ala. Value of shares, minus assessed real estate. Local tax rates Same as for trust companies. Local tax rates Ariz. Cap. stk., surp.and und.profits. Local and state Ark. Capital Value shares stock minus assess- Local tax rates ment real and personal property. Cal. Cap.stock,surplus and 1.^5$ Cep. stk., surp.and und.profits. 1.^5$ (Undivided profits less value of real estate assessed by counties). Col. Capital Stock Local tax rates Capital Stock Local tax rates Conn. Capital Stock 1$ Market value stock,less assessed 1$ real estate. Special: Trust companies having a savings department, taxed as savings banks. (Savings banks pay tax on corporate franchise (Sect. 1330)compiled as follows:- from the amount of deposits exclusive of surplus, deduct $50»000, also amount invested in bonds and certain stocks. The annual tax shall be £ of 1$ of remaining deposits, less the amount of taxes payable on real estate. Shares of stock are taxed at 1# of fair market value. Del. Cap. stk., surp.and und.profits 1/5 of 1 io Same as for trust companies 1/5 of 1# Special: Rate of 1/5 of 1# upon shares of stock based on net worth of shares. D.C. Special: Real estate taxed locally; 1-44 tax on gross earnings, in lieu of personal taxes. Shares are not taxed. Fla. Capital Stock $10-$300 Capital Stock Local tax rates Ga. Cap. stk., surp.and und.profits Local tax rates Same as for trust companies Local tax rates Idaho Cap. stk., surp.and und.profits Local tax rates Same as for trust companies Local tax rates 111. Same as other corp. I/20 of Vf> No franchise tax authorized Special: Trust companies organized under the general incorporation laws are taxed the same as other corporations thus organ!zed.Rev.St.,1905, c.120, sects, 1,3,*4-, 32-M-. State banks complying with the requirements made for trust companies as to deposit of securities with the state are authorized to accept and execute trusts. When such deposit has been made, the bank becomes a trust company as well as a banking oompany, and such companies are assessed the same as state and national banks. Rev. St.,1905* c.120, seot.13, 35-9* Ind. None Non# Cap. stk.,surp.and und.profits Local tax rates Iowa Cap. stk., surp.and und.profits Local tax rates Same as for trust companies Looal tax rates Kan. Cap. stk., surp.and und.profits Local tax rates Same as for trust companies Looal tax rates La. Local tax rates Market value of assets » Local tax rates Me. Cap.stk.,minus assessed real estate Cap. stk., surp.and und.profits 1 w Special: Tax assessors shall deduct from average amount of time and interest bearing deposits, the amount of bonds, securities, etc., and assess an amount of tax of ^ of 1$ on the balance. Also, shares of stock of trust companies are subject a 15 mill tax on the true value of the shares, the tax so collected is returned by the State Treasurer to the municipality where the institution is located. Md. Gross earnings 2-5$ Cap. stk., surp.and und.profits 1$ Special:A tax of 2upon gross receipts or earnings of every telegraph or cable, express or transportation, parlor car, sleeping car, safe deposit or trust company, incorporate under the laws of this State and doing business therein; said amount shall be as a Sltate Franchise Tax. (Code 192*4-, Vol.2, Art.Bl, Sec.172) Also, each company must report to the Supt. of Banks the par and true value of shares of stock upon which owners shall be taxed for state, county, and municipal purposes, at a ra&e no greater than would be if said shares were shares of a Nat*l. bank (Code 192*1-, Vol. 2, Art. SI, Sect. 22S).APPENDIX K (CONT*D) Mass. Income 6# Income 6$ Special: A tax is placed on all personal property held in trust which would be liable to tnT»tionr if held by any other trustee residing in the Commonwealth. A tax is also placed upon all deposits held upon interest, or for investments, other than those held in trust or subject to withdrawal within 10 days. Rev. Laws, 1902 c. 14- sects 35-6. A tax is plaoed upon the corporate franchise of trust companies. The value of the franchise is determined as follows: The tax commissioner is required to get true market value of shares of capital stook, and is to estimate therefrom a fair cash value which is to be taken as true value of franchise. From this amount the real estate, assessed locally, is to be deducted. The rate of taxation is determined by making an apportionment of the whole amount of money to be raised by taxation upon property of the Commonwealth. (Sects 37-4-0). Real estqte is taxed locally. Uich. Capital stock and surplus 5/20 of 1$ Same as for trust companies 5/20 of 1$ Speoial: All real estate is taxed locally. The residue of its capital and surplus is taxed as personal property, but the assessment shall not be at a greater rate than is assessed to moneyed capital in the hands of individuals. Minn. Cap. stk., surp.and und.profits Local tax rates Same as for trust companies Local tax rates Special:The tax provisions for corporations apply, viz; "It shall be the duty of every company which is requirea to pay a tax of 5$ on gross earnings in lieu of taxes and assessments on capital stock and personal property pursuant to the provisions of Sect. 2289, General Stat. of Minn.,1923, to verify the amount of said gross earnings during the year." The Tax Commissioner then determines the amount of tax due and certifies same to the County Treasurer where the trust company is located. Miss. Cap. stk., surp.and und.profits Local tax rates Same as for trust companies Local tax rates Special: True value of shares to owner. Banks pay on real estate locally MO. Cap. stk., surp.and und.profits l/20 of 1$ Same as for trust companies Local tax rates Mont. Cap. stk., surp.and und.profits Local tax rates Neb. Value of stock Local tax rates Sameos for trust companies 70# Local tax rate Nev. Full cash val.min.assd.real estate Local tax rates Cap. stk., surp.and und.profits Local tax rates N.H. Capital Stock 1 # Special: Excise tax for privilege of conducting a savings bank business equal to in 1926 - 17/24- of 1$; 1927, WST'of 1$; 1928, 15/24- of 1$; 1929, W24- of 1$; 1930, 13/24- of 1$; 1931, and thereafter, 12/24- of 1 jo upon the amount of savings on which it pays interest after deducting the value of real estate and mortgage loans, made at the rate of 5$ per annum. Also the amount invested in bonds, notes, etc. including County, Municipal, or State or U.S. bonds made at 5 Also, the trust companies pay a further excise tax for the privilege of conducting such business equal to 1$ of special deposits or oapital stock which is allocated back by the State Treasurer. Real estate is taxed locally. No other taxes are levied. No. Cap. stk., surp.and und.profits, $ of 1# Cap. stk., surp.and und.profits 3 of 1# minus assessed real estate Speoial: Trust companies are taxed in the taxing district where the office is situated, upon the amount of its capital stock issued and outstanding, except that any real estate belonging to the trust company is taxed where situated and the amount may be deducted from the amount of any assessment made upon capital stock of the trust company. The capital stock, property and franchises of trust companies are exempt from all taxes but the above mentioned. ■ li. Mex. Cap. stk., surp.and und.profits Local tax rates Same as for trust companies Local tax rates N.Y. Cap. stk., surp.and und.profits 1$ Same as for trust companies 1$ Special: Every trust oompany is required to pay an annual franchise tax equal to 1$ of the capital stock, surplus and undivided profits. A stockholder ia a trust company is not taxed as an individual for such stock. Real estate is taxed locally. N.Oar. Capital Stock 1/10 of 1# Capital Stock Local tax rates 11. Dak. Cap. stk., surp.and und.profits Local tax rates Cap. stk., surp.and und.profits Local tax rates Special: General provisions for taxing corporations. Ohio Same as banks Capital Stock Local tax rates Okla. Cap. stk., surp.and und.profits Local tax rates Same as for trust companies Local tax rat® Speoial: General provisions for taxing corps, apply.APPENDIX K (CONT'D) Ore. Pa. R. I. S. O. S.Dak. Tenn. Texas Utah Vt. Va. Wash. W.V. Wiß. Wyo. Capital Stock Local Tax rates Capital Stock i of 1 $ Cap. stk., surp.and und.profits 2/5 of 1$ Participation deposits 2/5 of 1 $ interest bearing deposits 2/5 of 1# Special: The State taxes deposits at 40# per $100 of deposits, after deducting real estate, shares are taxed to owner at residence by local assessor. Cap. stk. paid in l/5 of 1$ Capital and surplus Local tax rates Special: The State has an annual license fee of ^ of 1 mill upon each dollar of capital stock. Real estate is taxed locally. The company must pay the tax assessed on shares of stockholders. Corporation tax laws apply Market vai.minus assd.real estate Local tax rates Cap. stk., surp.and und.profits Capital Stock Local tax rates Local tax rates Cap.stk.minus assd.real estate Local tax rates Capital 8tock Local tax rates Cap.stk.,8urp.and und. earnings Local tax rates Cap. stk., surp.and und.profits Local tax rates Deposits 7/10 of 1$ Capital Stock 2$ Speolal: A domestic trust company or a savings bank and trust company doing business in the state, must pay annually a tax to the state, or if 10 of 1$ upon the average amount of its deposits, including money rec'd as trustee under order of the court, and deposited in its interest department after deducting therefrom the average amount, not exceeding 10$ of its assets invested in U.S. Gov't bonds. No other tax is to be assessed against deposits or depositors. Real estate is taxed locally. ' Capital, surplus 1.1$ Oap.,surp. and und. earnings, 1.1$ less value real estate Special: Shares are taxed same as bank shares at place of issue, at rate of 25# per $100, actual value. Local levies may be imposed on shares where the company is in a city, not to exceed 85# per hundred; 65# per $100 in a town; when in neither town nor city, the board of supervisors may levy not to exceed 85# per $100. An annual registration fee is required varying from $5.00 on $15,000 capital to $25*00 on Tr$300,000 or over. Cap. stk.,surp.and und.earnings Cap. stk. tax and gross income tax Net Inoome Cap. stk, surp.and und.profits Looal tax rates Cap. stk.,surp.and und.profits Local tax rates $50-$9I*0 on cap. Market vai.shares,less real est. Local tax rate s 3$ Val.shares stk.,assed.real estate Local tax rates Local tax rates Cap.stk.,surp.and und. profits Local tax rates Sources: 1. Barnett, G. E. State Banks and Trust Companies. Nat'l Monetary Commission Reports., Senate Doc.., 659. 2. Cato*, George, Trust Companies in United States, Baltimore, 1902, Johns Hopkins Studies in Hist. and Pol. Sei., XX. 3. Digest of State Banking Statutes, compiled by Weldon, S.A., Nat'l Monetary Commission Report, Senate Doo. 353., Washington, D.O., 1910. Laws of the States. 5. New York State Tax Commission, Annual Report of, Albany, New York, 1926. 6. Sohnaffner, Margaret A. Taxation of Trust Companies, Madison, Wisconsin, 1906. 7. Sherwood, Grace M. Summary of the General Banking Laws of the Commercial States. Providence, R.I. 190S.213 no marked change will take place in trust company activities. It is believed, however, that as people learn of the services available in this type of institution, its growth will continue at a greater rate of speed. Furthermore, it is believed that trust companies and trust company service will be made available in smaller and less populated communities; such would undoubtedly be desirable from an economic point of view; at present, however, the capital stock requirements preclude the possibility of trust companies being in any center where there is not a sizeable amount of wealth. It is believed, therefore, that the trust company is deserving of more consideration in the annals of American financial history, and particularly commercial banking, than it has received.APPENDIXAPPENDIX A TABLE I Number of Trust Companies in the United States, 1S77 - 1926 215 Date Number-*- Number^ Number^ Date Number^ Number‘d Number^ 1375 1376 1377 1373 1379 1330 1331 1332 1333 1334 1335 1336 1337 1333 1339 1390 1391 1392 1393 1391+ 1395 139S 1397 1393 1399 1900 44 40 37 35 37 33 42 44 50 52 52 63 63 102 125 124 214 223 241 III 263 276 492 35 50 1901 561 334 635 33 51 1902 636 417 735 39 52 1903 327 531 912 35 50 1904 924 535 994 32 51 1905 1,04-1 633 1,115 30 54 1906 1,337 1,435 742 1,304 31 56 1907 7?4 342 1,430 32 53 1903 1,496 1,470 34 70 1909 1,079 1,504 ?5 35 1910 1,091 1,527 40 99 1911 1,251 1,616 42 115 1912 1,410 1,579 53 150 1913 1,515 1,732 120 I65 1914 1,564 1,312 120 200 1915 1,664 1,777 149 255 1916 1,606 1,932 171 292 1917 1,603 2,009 163 315 1913 1,669 2,l4l 223 335 1919 1,377 2,173 224 345 1920 1 403 2,241 242 364 1921 1,474 2,390 260 330 1922 1,550 2,372 251 390 1923 1,643 2)473 246 415 1924 1,664 2,562 260 450 1925 1,630 2,701 290 513 1926 laffiL-. 1,656 2,634 .. iL,.7?l 1. National Monetary Commission Report, Sixty-first Congress, Second Session, 1909-IO, Senate Document, vol. XXIII; also Senate Document No. 659» 2. Comptrollers Reports. 3. Trust Companies of the United States.216218 APPENDIX D TABLE IV Table Showing Individual Deposits and Cash and Cash Items of Trust Companies* (1875 - 1927) Cash and Cash and Year Deposit Cash Items____________Year_____Deposit______Cash Items 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1297 1898 1899 19001, 85,025,371 87,817,992 84,215,3% 73,136,578 75,373,219 90,008,008 111,670,329 144,841,596 165,378,515 188,745,922 188,417,293 214,063,415 240,190,711 257,373,114 299,612,899 336,456,492 355,330,080 ^11,659,996 W6,2iM7? 471,293,816 546,652,657 536,468,156 566,922,205 662,138,397 335,499,064 028,232,407 9,019,016 2,993,932 2,798,191 2,862,355 2,716,631 3,376,549 4,448,891 3,437,501 3,870,71? 4,512,934 10,040,533 19,644,510 16,822,224 19,786,293 25,236,526 19,861,137 16,482,207 22,600,045 22,216,539 34,377,700 35,861,686 28,957,358 29,532,449 22,539,134 24,795,714 30,696,055 1901 1,271,061,174 1902 1,525,887,493 1903 1,589,398,796 1904 1,600,322,325 1905 1,930,856,737 1906 2,008,937,790 1907 2,061,623,035 1908 1,666,964,314 1909 2,835,835,000 1910 3,073,123,000 1911 3,295,856,000 1912 3,674,578,000 1913 3,543,659,000 1914 3,905,952,000 1915 4,179,323,000 1916 5,184,304,000 1917 5,782,869,000 1918 5,959,533,000 1919 5,678,424,000 1920 6,065,967,000 1921 5,611,787,000 1922 6,495,928,000 1923 6,831,018,000 1924 7,785,331,000 1925 8,536,860,000 1926 8,900,928,000 25,679,896 33,381,134 51,572,066 64,148,425 69,135,743 80,097,223 109,300,148 ¡fbm 286.504.000 291.589.000 333.829.000 332.709.000 357.630.000 335.601.000 439.447.000 449.555.000 288.151.000 340.845.000 342.170.000 403.482.000 432.460.000 401.483.000 623.370.000 663.091.000 700.301.000 * Comptroller'8 Reports.[ Number, Capital and Surplus, and APPENDIX F TABLE VI Total Resources of National and (In Millions of Dollars) State Banks, and Trust Companies* National Banks State Banks Trust Companies Tear Number Capital Total Number Capital Total Number Capital Total and Resources and Resources and Resources Surplus Surplus Surplus 1675 2,066 639.1 1,662.2 551 75.3 272.0 ' 35 26.6 122.9 1676 2,069 632.0 1,627.3 633 67.4 276.0 36 29.6 127.6 1677 2,060 602.2 1,741.1 592 116.6 363.0 39 29.5 123.6 1676 2,053 563.0 1,767.3 475 103.1 277.9 35 30.0 110.6 1379 2,046 566.9 1,666.6 6l6 120.7 315.6 32 26.6 111.6 1660 2,090 566.1 2,105.6 620 109.9 354.9 30 24.6 126.9 1661 2,132 591.9 2,356.4 652 113.6 416.9 31 26.0 156.5 1662 2,269 615.2 2,?99.g 672 114.9 436.6 32 29.9 195.0 1663 2,5°1 £51.7 2,372.7 754 126.1 512.1 34 31.5 212.3 1664 tm gum 2,664 671.3 . 2,279.5 617 141.4 521.1 35 .34.1 239.9 1665 2,714 674.1 2,432.9 975 155.3 553.6 40 37.1 246.4 1666 2,652 705.5 2,513.9 649 1,413 137.4 526.7 42 49.3 276.3 1667 3,0% 752.4 2,620.2 179.5 664.6 53 52.1 319.2 1666 3,140 773.1 2,615.$ 1,403 3.96.3 671.7 120 77.3 363.7 I669 3,290 600.9 2,993.3 1,671 214.6 796.0 120 65.O 441.3 1690 3,540 664.0 3,141.¡5 2,101 240.6 670.1 149 105.2 503.6 I691 3,677 905.O 3,2134 2,572 266.5 906.0 171 H7.6 536.6 1692 3,773 925.0 3,510.0 3,191 300.4 1,040.7 166 126.4 600,3 1693 3,731 925.0 3409.Ó 3,579 324.9 1,130.7 226 145.2 726.7 1694 3,755 913.0 3,474.0 3,536 316.6 1,077.2 224 154.7 705.2 I695 3*712 903.0 3,423.0 3,77^ 324.5 1,147.5 242 173.1 607.1 I696 3,676 696.O 3,263.0 3,706 310.6 1,107.2 260 173.5 655.3 1697 3,610 677.O 3,705.0 3,657 306.0 1,136.1 251 175.7 643.7 I696 3,535 669.O 4,003.0 3,965 314.9 1,356.1 246 171.3 942.5 1699 3,595 654.2 4,650.3 4,191 310.4 1,636.0 260 164.0 1,071.5 1900 3,671 692.2 5,046.1 4,369 326.4 1,759.3 290 239.5 1,330.2 ♦Comptroller' s Reports 220TABLE VI (CONT'D) Humber, Capital and Surplus, and Total Resources of National and State Banks, and Trust Companies (In Millions of Dollars) Year Number National Banks Capital State Banks Total Number and Resources Surplus_________________ Capital Total and Resources Surplus__________ Number Trust Companies Total Capital and Surplus Resources 1901 1902 1903 1904 1905 1906 1907 I90S 1909 1910 1911 1912 1913 1914 1915 1916 1917 I9IS 1919 I92O. 19 211 1922 1923 1924 1925 1926 4,165 4,535 4,939 5,331 5,668 6,053 6,429 6*8 24 6,926 7,1^5 7,301 7,397 7,488 7,525 7,605 m 7.705 7.705 8,030 5,154 8,2% 8,241 8,085 8,072 7,978 934.6 5,695.3 1,031.9 6,113.9 1,124.1 6,310.4 1,167.3 6,975.1 1,217.7 1,325.3 1.444.6 1,463.1 1.542.6 7,472.4 8,016.0 8,390.3 8,714.1 9,574.0 1.634.4 9,696.6 1.695.0 10,379.0 1.747.0 10,963.0 1.781.0 10,876.0 1.781.5 11,462.2 1.790.6 11,795.7 1.797.4 13,926.9 1.845.1 16,290.4 1.907.7 18 354.9 1.990.8 21)234.9 2,210.6 23,411.3 2.300.1 20,517.9 2,356.0 20,706.0 2.399.5 21,511.8 f’SH 22,565.9 2,468.4 24,350.r 2.611.6 25,3I5.i 4,933 5,397 5,962 6,923 7,794 à 1862 9,967 11,220 h 12,166 12,843 13,381 14,011 14,512 14,598 15,450 15,968 16,596 17,225 18,195 18,875 18,232 18,043 17,436 16,983 16,493 358.6 338.3 431.9 500.7 534.I 592.7 664.3 719.6 568.7 623.4 623-5 636.4 679.4 715.0 725.1 832.3 888.7 962.8 ^n 1921 returns from California, which in ___ _________________ 3.160.9 2.309.3 2.491.4 2,863.7 3.190.9 3.677.1 4.119.2 4.032.6 3.336.7 3.695.0 3.747.8 3.897.8 4.143.1 4,353.7 4,399.6 5,553.0 6,799-7 - 7,815.7 226.6 11,701.6 447.2 14,009.8 642.9 14,199.1 575.4 13,064.4 612.9 14,162.9 664.4 14,816.0 706.7 15,979.2 789.3 16,579-7 20 had shown 334 417 531 585 683 742 794 842 1,079 1,091 1,251 l,4l0 m 1.664 1,606 1,608 1,669 1,377 1,408 1,474 l)6^3 1.664 1,680 1,656 06 Stock Savin 256.9 329.6 455.0 492.3 514.4 616.6 645.4 648.6 714.5 800.1 786.1 843.3 897.7 908.8 927.5 984.7 1.040.3 1.068.3 942.4 985.7 1,053.5 1.095.0 1.198.1 1.293.3 1,366.7 1.487.2 gs Banks, the great 1,615.0 1.983.2 2,298.6 2.380.3 2,866.0 2.959.2 3.071.4 2,865.6 4.068.5 4.216.9 4.665.1 5.107.4 5.123.9 5.489.5 5.873.1 7.028.3 7.899.8 8.317.4 7.960.0 8.320.0 8.181.1 8.533.9 9,499.3 10,323.8 11,565.5 12,205.2 50 51 o included^all » er part of tne*APPMDIX P TABLE XIII Statement of New York Trust Companies showing conditions before, during and after the Panic of 1907* 230 Resources Bonds and Mortgages Stock and Bond Investment Amount loaned on collateral Bill8 Purchased Other loans not secured by collateral Other loans, including bills purchased Overdrafts Real Estate Due from trust company's books Due from reserve depositaries Specie United States notes and National bank notes Cash items Investments held as executor, eto. Other assets Add for cent8 Liabilities Capital Stock paid in Cash Surplus on book value Surplus on market value Deposits subject to check Certificates of dpposit Amount due to Tfrsat Companies Amount due to Banks and Bankers Preferred deposits ’1) Due New York Savings Banks 2) Due New York Savings and Loan Associations ’3) Due as ^xecutor, Guardian, Receiver, etc. ¡4) Deposits preferred because of pledge .5) Deposits otherwise preferred Preferred liabilities on aooount of investments held as Other liabilities Add for oents As of Jan. 1 1907 35,931,170 300,751,163 657,286,751 84,220,554 127,783 17,637,247 28,021,086 112,983,048 43,861,609 11,675,393 3,291,119 547,082 18,911,383 42 As of Jan. 1 8,506,218 2,013,398 f04,843 25,985,81* _____________ ______________42 17^5,"245,430 l^UTFTm^W 65,900,000 174,318,268 834,823,062 88,089,596 41,424,876 37,569,182 36,792,801 546,380 43,541,052 1,031,000 558,568 , 547,082 40,103,521 I7S55;'345,430 66,276,560 151,339,110 555,397,056 55,272,810 23,002,116 20,667,605 28,340,454 306,316 43,641,702 2,897,716 2,770,685 904,843 61,948,915 ___________42 1,412,747,930 As of Jan. 1 1908 I9O9 80,759,054 51,826,213 405,844,757 54,051,230 15,032,322 78,199,314 359,141,763 584,006,564 87,294,263 9,342,981 137,844 16,066,494 15,120,176 89,175,391 39,324,130 155,529 22,080,844 42,227,028 160,935,501 90,125,202 13,668,318 1,791,260 28,606,8J7 68,450,000 182,417,528 868,754,742 113,781,790 103,907,041 1,867,663 39,116,669 776,421 23,190,194 4,236,781 2,569,357 ^2,597,4J8 21,180,942 ^■728.253 Changes in certain items of Trust Companie Surplus on market value of stocks and bonds 8urplus on book value Interest and commissions received during the year All other profits during year Charged toLProfit and Loss on Account Depreciation Charged to other Losses Interest paid depositors Dividends declared on capital Total deposits on which interest is allowed 1907 176,249,525 176,485,276 65,151,554 9,604,871 5,050,042 672,852 32,068,655 11,660,488 1,006,174,560 I9O8 151,339,110 154,562,253 60,300,016 8,211,650 8,211,650 3,539,937 29,415,353 10,370,000 664,720,540 1909 173,427,232 53,551,155 13,558,873 5,882,175 2,602,695 28,287,282 11,718,500 1,083,365,370 ♦Annual Report of New York ötate Syperintendent of Banking 1. Borrowed money 2. Trust deposits not payable in 30 days 3. Deposits secured by New York State bonds 03 FOAPPENDIX ft TABLE XIV Earnings, Interest Paid, Expenses, Taxes and Dividends Paid by New York State Trust Companies* as of January 1 each year isso - 1910 231 Date Number of Companies .... . . (12) rss§— (14) ~~rm-— _ __ (17) T8ÏÏ5 (20) IFS6 (20) IM7 (19) Warnings from all Sources Interest Paid to Depositors Expenses other than Taxes Taxe8 Paid Dividends Paid 5,000,000 1,500,000 575.000 850.000 5,125,000 1,750,000 755,000 1,000,000 7.100.000 3.100.000 675,000 1.350.000 7,200,000 3.275.000 715,000 1.350.000 6,000,000 3,000,000 750,000 1,400,000 7,402,869 2,661,369 848,084 1,615,250 Date Number of Companies .... . .(25) 1889 (26) I890 (31) 1851 ■ (32) 1892 (33) — (36) Earnings from all 8ouroes Interest Paid to Depositors Expenses other than Taxes Taxe8 Paid Dividends Paid iip,5«.,S79 4,109,028 1,759,799 2,078,035 - 97150,718 3,930,34g 1,573,208 2,082,350 11,125,000 4.100.000 1.850.000 2.125.000 " : 19^057561“ 5,180,646 2,243,747 2,380,703 13,900,000 5,200,000 2,243,747 2,380,703 14,200,000 5.325.000 2.400.000 3.125.000 Number of Companies ïiffk'579—ï^i;|77 5.470.018 5,S?4,460 TS9I .r .379 5*470,018 2,613,963 3,597,000 lb, 727,4-80 6,409,366 2,7IS,875 lg;'5'21,"SS3" 6,99^,272 2,949,079 , 299,596 4-, 220,000 T19TÄW 7,568,^2 3,202,24-0 312,786 4,354,553 ■23,-647,759' 8,800,293 3,665,936 1,455,557 4,401,500 Earnings from all Sources Interest Paid to Depositors Expenses other than Taxes Taxes Paid Dividends Paid 2,^98,677 3.9-97.700 ¿3,850,850 5St7"."."7 . ............19ÔÛ"" ' ~ lÿol" "" 19Ö2 1903 I904 1905 Humber of Companies............(59)______________(63)_______(70)________(77)_________(81)_________(Si) Earnings from ¿11 Sources ¿3,613, 320 33, 992^377 ,973, 187” 51 7324" 7m~ ,¿6? TO?2? Interest Paid to Depositors 12,253, 05S 14, 244,490 18 ,878, 383 23, 801,730 24 ,25p ,000 25 ,954 ,661 Expenses other than Taxes 4,301, 085 5, 044,794 5 ,917, l4l 7, 566,787 7 ,754 ,032 8 ,031 ,°93 Taxes Paid 599, 446 695,460 1 ,934, 100 1, 975,225 2 ,222 ,955 2 ,137 ,744 Dividends Paid 5,635, 389 5, 555,338 6 1 306 y 000 10, 305,852 9 ,347 ,500 9 ,508 ,000 Sate Number of Companies (82) 19-07 — (.86) " 15ÖH" (85) -'-ITO ? (87) S -T9IÖ (88) Warnings from all Sources Interest Paid to Depositors Expenses other than Taxes Taxes Paid Dividends Paid 67,140,424 31,873,580 10,399,516 2,301,390 10,277,715 67,140,424 31,873,580 11,815,910 2,482,202 11,660,488 68,511,666 29,415,353 11,605,916 2,537,080 10,370,000 67,110,628 28,287,282 11,675,968 2,504,343 11,718,500 77,846,107 34,545,150 12,301,443 2,516,203 14,393,000 ♦Compiled from Annual Beport of the Superintendent of Banks, Relative to Savings Banks, Trust Companies, Safe Deposit Companies and Miscellaneous Corporations. 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oX Yoox z9 3? 2V 70 7S S4 92 ?y 39 97 Pz H //¥ /et /// //4 /o7 /oé /o¥ 76 9? 99 8V 9o /o2 /oé Yô/crY Y\Y¿//t7¿ox //? S/?oxerY/ox /Z/ 2// 2*e zwt zev 24/ 24e 273 es? 432 tZ3 7? o /037 /337 /V8S~ /Vf6 /79o /7?3 /6/7 /649 /Ï2S /970 2003 /9?V Z//8 2/6a 2/60 22/3 2377 23s? 2V62 20VS 26?2 7oYes/ AY///?Yox of YS/Yl/xos J /? s / 3

x /e? 0/?oxerf/os? 2.Vf SSo Z/? o.-v/ /./? 2.9? o.?s~ 0.73 0.2/ 0.7/ O./é O.Z9 o. H O./7 0.30 0.2? /6s?7/?&/?)/ AYene Ye/xf,— foxiXerf/os /Yo/?? /%96 Yo /Y37 ,020,241 ,425,124 ,43S,370 ,369,301 ,503,916 ,609,059 of Banking, 1927, 354,222 400,944 443,047 472.927 499,242 505.927 534,536 56S,2S6 590,54s 615,669 644.927 667,S65 675,937 71S,454 704,535 735,S63 7S3,07S Sl2,173 369,751 923,420 1,000,209 1,066,01 1,131,56 1,191,327 1.235.500 1.311.993 1.405.500 1,464,950 1,465,295 1,536,610 l,62S,9l6 1,695,650 1,730,662 1,661,763 1,926,334 1,912,204 1,974,046 2,139,299 2,165,939 2,231,461 2.456.993 2,730,167 2,922,732 3,205,96? 3,471,002 TABLE X (CONT'D) (000 omitted) Date 1 Trust Companies Banks of discount and Deposit Savings Banks 1925 1926 1927 4,464,409 l,680.47fc 1,74^,482 2,004,336 3,797,OSO 4,043,599 4,347,527226 APPENDIX N TABLE XI Table Showing Number, Net Worth, Average Net Worth per Company, Capital Stock, and Average Capital Stock per Company for Trust Companies, 1904 - 1926* Tear 1904 1905 1906 1907 19OS 1909 1910 1911 1912 1913 1914 1915 1910 1917 191S 1919 1920 1921 1922 1923 1924 1925 1926 1221 Number Net Worth Average Net Capital Stock Average Cap^ of Com- (000 omitted) Worth per (000 omitted) ital Stock panies Company per Company 994 1,115 1,304 1,460 1,470 1,504 1,527 1,616 1,579 1,732 1,612 1,777 1,932 2,009 2,l4l 2,173 2,241 2,390 2,372 2,476 2,562 2,701 2,664 .g.,131 709,770 775,171 637,635 915,029 901,909 917,467 965,95? ■299,574 1,040,665 1,057,452 1,099,261 1,091,660 1,166,456 1,250,404 1,296,132 1,362,675 1,549,003 1,676,663 1,726,412 1,695,364 2,061,724 2,243,013 2,422,607 2,676,016 714,054 695,221 642,356 616,264 6X3,59« 613,294 632,566 616,549 659)206 610,536 606,657 614,452 604,791 622,402 606,321 636,390 691,211 701,541 726,673 764.665 612,539 630,436 902.665 960,600 330,313 349,615 ?7f»?n 416,477 410)792 415,035 446,166 441)545 466,412 466,161 503,501 503,362 530,634 567,665 603,565 650,500 716,726 622,646 610,262 910,971 974,197 1,021,167 1,067,415 1,161,305 332,307 313,736 290,270 262,' 279.' 277,430 292,166 273,234 296,652 270,313 277.671 263,277 274,656 262.671 261,916 299,356 319,626 334,204 341,594 367,624 360,249 376,070 405,147 ♦United States Mortgage & Trust Company. Trust Companies of the United States, 1927, for Trust Companies.TABLE XI (CONT’D) Table Showing Number, Net Worth, Average Net Worth per Company, Capital Stock, and Average Capital Stock per Company for National Banks, 1904- - 1926* Year Number Net Worth (000 omitted) 1904 5,331 1,349.0 1905 5,663 1,406.9 1906 6,053 1,491.3 1907 6,429 1,604.1 19OS 6,324 1,667.3 1909 6,926 1,744.1 1910 7,145 1,351.0 1911 7,277 1,933.1 1912 7,372 1,934.4 1913 7,473 2,045.6 1914 7,525 2,049.7 1915 7,605 2,105.3 1916 7,579 2,103.2 1917 7,604 2,193.6 1913 7,505 2,249.3 1919 7,7^5 2,363.5 1920 3,030 2,622.1 1921 3,154 2,796.3 1922 3,249 2,343.4 1923 3,241 2,375.7 1924 3,035 2,916.2 1925 3,072 2,970.0 1926 7,973 3,099.3 Average Net Capital Stock Average Cap-Worth per (000 omitted) ital Stock Company per Company 253,043 243,213 246,373 249,510 244,402 251,319 259,062 265,645 269,130 273,732 272,335 276,331 277,503 239,137 299,773 303,596 326^537 342,935 345,302 343,950 360,692 367,933 333,430 971.6 326.1 333.7 919.1 937-9 969.6 1.019.6 1.033.6 1.056.9 1.053.2 1.063.5 1,066.0 1.032.3 1.093.6 1.113.6 1.224.2 1.273.9 1.307.2 1.323.9 1,334.0 1.369.4 1.412.3 143,950 171,413 136,477 137,455 134.636 135,237 133,502 140,112 140,206 141,429 140,624 140,499 140^652 142,393 146,332 143.636 152,453 156,230 153,467 161,254 164,997 169,643 177,036 ♦Comptroller's Reports for State and National BanksTABLE XI (OONT'D) Table Showing Humber, Net Worth, Average Net Worth per Company, Capital Stock, and Average Capital Stock per Company for State Bank§ 1904- - 1926* Year Number Net Worth Average Net Capital Stock Average Gap-(000 omitted) Worth per (000 omitted) ital Stock Company per Company 1904 6,923 19°5 7,7?4 1906 8,862 1907 9,967 1905 11,220 1909 11,319 1910 12,166 1911 12,843 1912 13,381 1913 14-,Oil 1914 14,512 1915 14-, 998 1916 15,*50 1917 15,968 1918 16,596 1919 17,225 1920 18,195 1921 18,875 1922 18,232 1923 18,403 1924 17,436 1925 16,983 1926 16,%3 569,828 597,360 572,960 752,915 806,129 659,912 688,975 716,296 730,441 770,220 806,171 822,106 823,471 997,195 1,077,05« 1,290,697 1,669,729 1,854,75« 1,7«5,9«5 1,830,151 1,«73,171 !,933,572 1,944,087 82,309 76,643 64,653 75,540 71,847 58,301 56,631 55.773 54,587 54,972 55,552 56,316 53,299 62,449 64,898 74,931 91.774 98,265 U’ttt 107^448 113,853 117,873 347,421 379,756 421,845 471,663 502,513 416,059 435,822 452,944 459)067 483,103 501,154 503,985 ? Ml 600,064 563, 640,006 7«5,727 920,211 1,063,045 1,014,248 l,04l,4l3 1,061,619 1,062,264 1,092,473 50,183 4«,725 47,601 47,322 44,787 36,757 35,822 35,267 34,307 34,480 34,533 34*524 36,472 37,579 38,563 45,615 50,574 56,320 55,630 56,5«? 60,886 62,548 66,239 •Comptroller’s Reports for State Banks.APPENDIX O TABLE XII Number of National and State Banks and Trust Companies together with Total and Average Deposits, 1900 - 1926* Number Year of Companies National Banks State Banks Total Number Total Deposits Average of Com- Deposits (000 omitted) Deposit panies (000 omitted) 1900 1901 1902 1903 1904 1905 1906 1907 I9OS 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 I92S 1927 3,g71 4,1*5 4,535 4,939 5,331 5,665 6,053 6,4-29 6,524- 6,926 7,145 7,301 7,391 7,453 7,525 7,605 m 7,705 7,735 5,030 3,154 5,249 5,24-1 5,055 5,072 7,97g 635,002 4-,369 706.323 4,953 653.324 5,397 645,105 5,962 621,354 6,923 667,547 7,794 670,060 5,562 672,403 9,967 641,05311,220 707,27311,319 739,95512,166 750,30612,543 755,15313,351 775,65114,011 516,37514,512 545,25214,595 7,550,615 1,035,83715,450 9,323,413 1,226,11915,965 2,455,093 2,941,537 3,093,376 3,200,994 3,312,440 3,733,653 4 055 J74 4.322.550 4.374.551 4,393,577 5,237,216 5,477,991. 5,325,461 5,530,543 6,143,245 6,425,143 ___f___ _________________ ió;6í9;4í5 î!301¡6/716^596 .......... - ,44"------- 11,591,132 13,705,325 1,527, 1,706,71 _ , 12,405;631 1,521,41513,575 117,225 ’6513,195 13,264,366 1,607,99615,232 14,043,460 1,704,09615,043 14,553,133 1,537,12517,436 16,354,912 2,026,12516,953 17,092,412 2,142,44316,493 1,266,735 1,610,502 1,693,155 1,314,578 2.073.210 2.365.210 2,?4l¡464 3,063,650 2,937,130 2,466,959 2,7?7,9ö7 2,777,567 2,91?,97g 3,036,352 3,139,737 3,231,654 4,254,554 5,376,701 6,094,562 g,976,046 10,336,155 10,675,467 10,107,597 11,130,142 11,755,233 12,632,753 13,153,075 Average Deposit 239,937 323,199 314;653 304,355 299,463 303,465 309,350 307,330 261,776 217,94g 224,225 216,270 213,213 216,749 219,799 221,376 277,317 336,717 367,230 521,105 595,553 565,5g7 554,337 616,367 674,193 746,791 797,797 Number of Companies Trust Companies" 912 994 1,115 1,304 1,450 1,470 1,504 1,527 1,616 1,579 1,732 1,312 1,777 1,932 2,009 2,141 2,173 2,24l 2,390 2,372 2,475 2,562 2,701 2,634 2,731 Total Deposits (000 omitted) Average Deposit ♦Sit1 ,deP9sit8 £,nclude Individual deposits and due to Banks, Bankers, and Bankin; £r 8 R?P°rts ¿or State and National Banks; Trust Companies of the Uni for Trust_Co^^ie_s^_^ublishe^b^th^Unitjd^tate^M^tg^gjS & Trust Compan^^^ 2,361,942 2,955,033 3,013,501 3,222,319 2,913,405 3,567,026 3,496,162 3,315,524 4,036,145 4,240,312 4,625,107 5,010,051 6,247,570 7,362,330 7,412,963 5,776,347 9,764,751 9,544,012 10,470,477 11,323,933 13,259,143 15,932,226 16,324,522 2,376,200 2,650,300 2,314,501 2,177,243 1,931,903 2,354,376 2,239,563 2,361,273 2,537,306 2,443,217 2,554,143 2,319,337 3,233,732 3,664,923 3,462,334 4,035,516 4,357,319 3,997,495 4,4i4,195 4,773,601 5,137,021 5,539,700 5,954,630 6,160,652 Associations, ed States, 1927,va ro ro230231APPENDIX R TABLE XV Aggregate Gains and Aggregate Losses in Deposits in Specific Trust Companies of New York City as Shown in December, 1902 Company Astor Trust Co. .............. Banker s Trust Co............ . Bowling Green Trust Go........ Broadway Trust Co. ........... Carnegie Trust Co. ........... Central Trust Co.............. Columbia Trust Co. ........... Commercial Trust Co......... Commonwealth Trust Co......... Empire Trust Co............... Equitable Trust Co............ Farmers Loan and Trust Co. .... Fidelity Trust Go.......... Fifth Avenue Trust Co......... Fulton Trust Co. ............. Guaranty Trust Co............. Guardian Trust Co. ........... Hudson Trust Co. ........ Italian-American Trust Go..... Knickerbocker Trust Co........ Lawyers Title and Trust Co. ... Lincoln Trust Co. ............ Manhattan Trust Co............ Mercantile Trust Co........... Metropolitan Trust Co........ Morton Trust Go. ............. Mutual Alliance Trust Co. ..... New York Life Insurance and Trust Co. .................... New York Trust Co. ............ Standard Trust Go. ............ Title Guaranty and Trust Go. Union Trust Co.............. U.S. Mortgage Trust Co...... U.S. Trust Co. I............ Van Norden Trust Co......... Washington Trust Co......... Windsor Trust Co............ Gain since August 22, 1907 3.25M5S 6,621,150 1,026Ì59S 19,21^,735 1)673,9*7 316,056 3,015)162 3,576,230 30,632,009 1,34-2,266 12,975,296 1,022,067 6,270,504- 5,357,695 • * • * • 4-,Oil,506 14-, 225,230 791,292 • ♦ ♦ # ♦ 24-7,322 6,566)92.3 Loss since August 22, 1907 1,97s,9^ 1,470,590 « ♦ • » • 4 ♦ ♦ * • 39 3,223,564- 590,565 4-55,795 203,526 1,022,69? 26,372,024 14-, 390)993 635,732 13,276,55^ 239,979 4-, 222,4-24- A];/*; 4-, 04-9) 227 1,515,94-3 721,64-5 2,693,397 ♦Commercial and Financial Chronicle, Quotation Supplement, December 5, 1902, p. 922.233 APPENDIX S TABLE XVI Trust Company Suspensions* 1693 - 1925 Number Year of Companies Indicated Total Assets Estimated Liabilities 1693 14 14,357,500 1694 3 510,000 1695 2 155,000 1696 6 3,692,279 I697 2 375,000 1696 2 5,074,466 1699 2 4,776,000 1900 1901 26,765 1902 2 1903 6 12,764,000 1904 4 1,523,575 1905 4 6,390,055 1906 3 4,490,000 1907 17 104,192,210 1906 15 9,313,671 1909 6 5,051,000 1910 3 172,000 1911 5 10,925,000 1912 3 1,251,926 1913 5 2,264,300 1914 12 7,795,2^2 1915 6 222,270 1916 3 450,000 1917 3 1,170,000 19I6 1 1,745,139 1919 4 6,650,000 1920 7 41,716,100 1921 11 22,516,612 1922 13 6,174,509 1923 16 9,949,462 1924 13 TW 17,609,300 22,366,000 1,012,000 165,000 4,069,732 550,000 6,401,412 6,025,000 51,66I 14,436,166 2,756,300 6,646,377 7»725,000 116,336,036 12,5^7,671 4.165.000 276,000 12,373,000 2,711,590 2,501,660 6,346,626 425,450 767,000 1.771.000 1,745,139 7,690,000 45,106,637 26,567,516 7,646,343 14,550,636 20,264,500 Avg. 5.97 ♦Bradstreets Reports, January 24, 1925*234835 236 I APPENDIX D r TABLE XIX Number of Suspensions Trust Companies, State Banks, and National Banks with Liabil- ities, 1892 - 1925 Number Number Kumber Year of Liabil- of Liabil- of Liabili- CO* 8 Assets ities Co’s ities Co's ties 1892 3 209 , *?? 24 3,178 17 12,769 189? 19 15,09s 24,144 I72 36,903 65 20,356 1894 8 33,420 37,977 27 2,010 21 5,579 1895 6 M07 5,844 46 3,445 36 9,416 1896 4 1,159 936 55 4,628 27 10,066 1897 12 3,436 M25 44 81083 38 26,415 1898 2 1,275 1,575 14 694 7 3,817 1899 2 5,067 6,701 5 i,24o 12 1,810 1900 4 5,243 6| 636 9 442 6 10,312 1901 4 995 1,113 8 1,440 11 7,676 1902 1 12 22 12 2,056 2 379 1903 2 371 56I 6 865 12 5,710 1904 8 13,128 15,880 37 6,725 20 6,379 1905 2 2,525 3,600 16 2,282 22 13,679 19O6 4 4,636 3,990 15 1,006 8 1,602 1907 4 4,850 8,100 10 4,833 7 5,482 19O6 25 110,047 126,200 42 43,227 24 22,417 1909 6 5,342 5,412 19 3,286 9 3,184 1910 6 3,072 2,216 9 8,3.70 6 2,905 1911 2 140 230 28 12,678 3 922 1912 4 2,452 4,304 29 3,129 8 4,485 1913 3 3,409 3,420 18 1,866 6 6 ¡674 1914 9 7,948 8,752 53 11,511 21 9,774 1915 9 988 l,34l 57 4,820 14 + # * |r 12,767 1916 3 256 257 23 2,991 13 3,020 1917 4 1,470 2,371 15 3,551 7 5,282 1918 2 1,845 1,898 12 1,094 2 2,359 1919 4 1,651 35 7,775 1 496 1920 3 3,978 32 11,945 5 1,930 1921 26 65,535 263 24,810 28 17,301 1922 35 17,641 306 73,044 33 20,287 1923 7 2,818 202 53,886 37 20,076 1924 14 “2471 23,868 182,136 138_ “555® 74,743 1925 421 112,301 102 53,315 1926 470 144,718 77 38,112 pAvg. 7.05. *Ayg. 71.12. úAvg. 19.85. Total number of State Banks in operation (1892-1925) S 19,330 Total number of National Banks in operation (1892-1925) = 8,709 Total number of Trust Companies in operation (1892-1925) * 2 >9Û* *U.S. Comptroller1s Reports (Many of the statistics on trust oompanies come from Bradstreets Reports). APPENDIX W TABLE XX Table Showing Number, Capital, Surplus and Undivided Profits of National Banks together with Their Dividends and Earnings 1900 - 1926* Surplus Net Addi- Ratio in Per Cent Capital and Un- tions to Dividends dividends Dividends Tear Number Paid in divided Profits Profits to Capital to Capital and Surplus 1900 3,732 621.5 391.5 52.4 45. 7.2 5.1 1901 £,165 645.7 416.7 27.7 50.2 2.1 5-7 1902 4,5^5 702.0 422.4 99.1 64.2 9.2 6.3 1903 *4,939 743.5 542.2 102.7 60.1 2.7 5«? 1904 5,331 737.4 521.6 II6.5 73.6 9.9 6.6 1905 5,662 791.6 615.3 105.2 71.0 9.2 6.1 1906 6,053 226.1 665.2 113.7 20.3 10.4 6.3 1907 6,429 gg3.7 720.4 1219.2 144.4 17.2 10.2 190S 6,224 919.1 742.7 132.3 92.1 10.29 6.75 1909 6,926 937.0 207.1 131.2 93.0 10.12 6.12 1910 7,145 929.6 261.4 154.2 IO5.9 10.99 6.65 1911 7,277 1,019.6 913.5 157.0 n4.7 11.32 6.23 1912 7,372 1,033.6 950.3 I49.I 120.3 11.66 6.93 1913 7,473 1,056.9 922.7 161.0 119.9 11.40 6.75 1914 7,525 1,052.2 991.5 149.3 120.9 11.37 6.20 1915 7,605 1,063.5 1,036.2 127.1 113.7 10.63 6.33 1916 7,57? 1,066.0 1,037.2 157.5 114.7 IO.76 6.33 1917 7,604 1,032.2 1,115.3 194.3 125.5 11.61 6.79 191S 7,705 1,092.6 1,151.2 212.3 129.3 11.32 6.72 1919 7,725 1,112.6 1,244.9 204.4 135.6 12.15 6.23 1920 g,030 1,224.2 1,397.9 232.1 147.2 12.10 6.70 1921 2,154 1,273.9 1,522.4 216.1 152.2 12.42 6.33 1922 2,249 1,307.2 1,541.2 133.7 165.9 12.69 7.04 1923 g,24l 1,322.9 1,546.2 203.5 179.2 13.42 7.47 192*4- g,0S5 1,334.0 1,522.2 195.7 163.7 12.27 6.73 1925 g,072 1,369.4 1,©00.6 223.9 165.O 12.05 6.63 1926 7,972 1,412.9 1,672.5 249.2 173.2 12.30 6.65 Atg. 11.24 A^6.74 ^Figures are for Mar. 1, 1906 to July 1, 1902. ♦Comptroller’s Reports.239 BIBLIOGRAPHY X. 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Harris, Virgil M. The Trust Company of Today. The Banking Law Journal, Vol+ XXII, p. 97-101, February, 1905*244 Harding, W.G.P. State Banks and The Federal Reserve System. 66th Congress, 2nd Session, 1919-1920. General Documents, Voi. l4, Misc.l. Document No. lglf. Washington: 1920. Heaton, Ernest. The Trust Company Idea and Its Development. Toronto: The Hunter, Rost Company, Ltd., 190*1-. Herrick, Clay. Trust Companies, Their Organisation, Growth and Management. New York: Bankers Publishing Company: 1909. Herrick, Clay. Trust Departments in Banks and Trust Companies, 1st Edition. New York: McGraw-Hill Book Company, Inc., 1925* Herrick, Clay. The Definition and History of Trust Companies. Banking Law Journal, Vol. XX, May, 1903. Hull, Walter H. Practical Problems in Banking and Currency. New York: The Macmillan Company,1907• Hunter, M. H. The Development of Corporation Taxation in New York. Urbana, Illinois: 1917* Huntington, Charles 0. A History of Banking and Currency in Ohio Before the Civil War. Columbus: The F. J. Heer Printing Company, 1915* Jackson, A. A. The Trust Company Day by Day. An address delivered before the Pennsylvania Bankers' Association. Philadelphia: Commercial and Financial Chronicle-Bankers' Convention Supplement, 1911. Johnson, E. R. and Others. History of Domestic and Foreigh Commerce of United States. Washington: Carnegie Institute of Washington, 1915* Jones, Elliott. The Trust Problem in United States. New York: The Macmillan Company, 1922. Jones,Breckenridge. The Trust Company Question. Paper read before the Missouri Bankers' Association, June 9, I892. Keyes, E. W. History of The Savings Banks of United States, Vol. II. New York, B. Rhodes Publishing Co.245 Kirkbride, Franklin B., Sterrett, J. R., and Willis H. Parker. The Modern Trust Company, 6th Edition Enlarged and Revised. Hew York: The Macmillan Company, 1925. Kilburn, Frederick D. Control and Supervision of Trust Companies. Annals of the American Academy of Political and Social Science, Vol. XXIV, July, 190^. Knox, John Jay. A History of Banking In United States, Mew Edition. Bankers* Publishing Company, 1903. Langston, L. H. Practical Bank Operation. Mew York: The Ronald Press Company, 1921. Laughlin, J. Laurence, Editor. Banking Reform. The National Citizens League for the Promotion of Sound Banking System. Chicago, 1912. Chapter XV on State Banks and Trust Companies. Lanier, Henry Wysham. A Century of Banking in Mew York, 1822-1922. Mew York: George H. Doran Company, 1922. Martin, William McChesney. Modern Banking and Trust Company Methods. Banking Law Journal, Mew York. Published serially. Vols. 28-35* October, 1911 to October, 1918. McCabe, Joseph. 1825-1925- A Century of Stupendous Progress. New York: G.P. Putnam's Sons, 1926. Noyes, Alexander D. The Trust Companies: Is There Danger in the System? Political Science Quarterly, June, 1901. Vol. XVI, p. 2^8-261. Noyes, Alexander D. Forty Years of American Finance. Mew York: G. P. Putnam's Sons, 1909- Noyes, Alexamder D. The Cycle of Prosperity. Century Magazine, Vol. 53, pp. 629-22, 1907-1908. Page, R. G., and Gates, P. G. The Work of the Corporate Trust Departments. Mew York: Prentice-Hall, 1926. Perine, Edward T. The Story of Trust Companies. New York: G.P. Putnam's Sons, 1915* Pitkin, Timothy, A Statistical View of Commerce of the United States, 2nd Edition. Mew York: James Eastburn & Company, I8I7.246 'Preston, W.A. Etude sur les Trusts et Trustees. Paris, 1904. H. Daragon, Editeur, 1904. Troiseme Partie- Les Trusts aux Etats-Unis. Ridgely, William B. Government Control of Banks and Trust Companies. Annals of the American Academy of Political and Social Science. July, 1904. Vol. XXIV. Sammis, L. Walter. The Relation of Trust Companies to Industrial Combinations as Illustrated hy the United States Shipbuilding Company. Annals of the Amerioan Academy of Political and Social Science, Vol. XXIV, July, 1904. Schaffner, Margaret A. Trust Company Reserves. Madison, Wisconsin: Free Library Commission, Legislative Reference Department, 1906. Bulletin No. 6. Schaffner, Margaret A. Taxation of Trust Companies. Madison, Wisconsin: Free Library Commission, Legislative Reference Department, 1906. Bulletin No. 7* Scroggs, W. 0. A Century of Banking Progress. New York: Doubleday, Page & Company, 1924. Seligman, E.R.A. Essays in Taxation. New York: Macmillan, 1926. Smith, James Gerald. The Growth and Development of the Modern Trust Company. New York: Henry Holt & Co., 1926. Sprague, 0. M. W. Banking Reform in United States. Cambridge: Harvard University Press, 19II... Sprague, 0. M. W. History of Crises Under the National Banking System. National Monetary Commission Publications, Washington, 1910. Stevenson, Charles W. The Trust Company, Rand McNally Bankers» Monthly, March to October, 1903. Vols. XXV, XXVI. Sumner, Charles G. A History of Banking in All The Leading Nations, Vol. 1. New York: Journal of Commerce and Commercial Bulletin, 1&$6. Trust Functions. Published by American Institute of Banking, New York, 1927. Westerfield, Ray B. Banking Principles and Practice. New York: The Ronald Press, 1921.247 White, Horace. Money ana Banking, 5th Edition. Hew York: Ginn and Company, 1911. Willis, H. Parker and Edwards, George W. Banking and Business. Revised and Enlarged Edition. New York: Harper & Brothers, 1925. Young, George W. Trust Company Reserves. The North American Review. February, 1906. Vol.CLXXXII, pp. W-465. III. Serial Publications and Booklets. American Bankers1 Association, Journal of. New York. July, 190S-1922. American Bankers* Association, Trust Company Section. Proceedings of the Annual Meetings from 1896-1928. Published in the Commercial and Financial Chronicle, Bankers and Trust Supplement (later Bankers Convention Supplement). New York. 1896-1922. American Economic Review. Published Quarterly by the American Economic Association. 1911-1928. Annals of the American Academy of Political and Social Sciences. New York. I89O-192S. Bankers' Magazine. New York. Published Monthly by the Bankers' Publishing Company. 184-6-1922. Banking Law Journal. New York. Published monthly, 1889-1928. Bradstreet's Reports. Published weekly. New York. 1879-1928. Bulletin of the American Institute of Banking. New York. Published quarterly, July, 1918-1928. Formerly the Bulletin of the American Institute of Bank Clerks; from July, 1910-1918, it was combined with the Journal of the American Bankers' Association. Century Magazine. New York. 1870-1922. Commercial and Financial Chronicle. New York. Published weekly, 1872-1928. Contains the Proceedings of the American Bankers' Association. Moody's Manual. New York. Four Volumes, issued annually. I. Steam Railroads. II. Public Utilities. III. Industrials. IV. Government and Municipals.248 Hiles Register. Baltimore. 1811-184-8. Poor's Manual. New York. 1868-1928. E. U. Poor Publishing Company. Rhodes Journal of Banking. New York, 1886 to 1905» when it was consolidated with the Bankers' Magazine. New York. Rand McNally's Bankers' Monthly. New York. Rand McNally Publishing Co., July, 19OO-1905. Trust Companies, New York. Published monthly; March, 190^ to date. Trust Companies in Philadelphia. A booklet issued by The Educational Committee of the Chamber of Commerce. Philadelphia, 1917* Proceedings of the National Association of Trust Companies, which is divided into four main divisions as follows: a - Proceedings of Trust Company Division, of the American Bankers' Association. b - Proceedings of the Mid-Winter Trust Conferences of all trust company officials in the United States, held annually in New York. c - Proceedings of the Mid-Continent Conferences, which represent annual conferences of trust company officials in the States of the Middle section of United States. d - Proceedings of the Regional Trust Conferences, which represent conferences of the trust company officials of the Rocky Mountain section. Banking System of Massachusetts, An examination of. Boston: Stimpson & Clapp, 1831. Massachusetts Hospital Life Insurance Company, Booklet of. Contains original acts. (1818, 1823, 1824-, 1882, 1883, 1894-, 1903). Boston, 1924-. Trust Company of Today. An address. Published by The Mercantile Trust Company. St. Louis, 1904-. The Banking Power of The Trust Company, A Booklet. Issued by Guaranty Trust Company of New York, 1905.VITA— VITA The author, John Fred Bell, was born near Cambridge, Ohio, on February 21, 1898. Hie High School education was obtained in the Carrollton (Ohio) High School from which he was graduated in 1917. After serving a term of enlistment in the United States Army, he entered Muskingum College in the fall of 1919. He was graduated from the same college in 1923. In September 1923 he entered the College of Commerce of the University of Illinois, as a half-time assistant in the Department of Economics. In October 1924 he received the degree of Master of Arts. In September 1925 he was appointed as Instructor in Economics in the College of Commerce, in which capacity he served until hie resignation in the spring of 1927 to become a full-time Graduate student. In the summer of 1927 he was on a scholarship at Harvard University. Since his resignation from the Economics staff, he has devoted his time to the preparation of this study.