$25,000, has resulted in the conversion of a large number of State banks in the country towns into national banks, and the organization of a great many national banks to succeed private ones. Probably the principal reason for this tendency is the great increase in the number of trust companies which have been organized during the last ten years. These companies, organized under State laws originally designed to provide for companies doing a strictly trust business are taking advantage of the liberal character of those laws, and a very large portion of the new organizations are merely commercial banks, having trust company privileges perhaps, but in reality doing comparatively little strictly trust company business. The laws of the different States, particularly in regard to the cash reserves to be held, and loaning money on real estate security, are so liberal that organizations of this character have a great advantage over the national banks in the inducements which they can offer their customers. It is naturally to be supposed that any one contemplating the organization of a new bank, other things being equal, will be inclined to do so under the laws which allow the greatest freedom from governmental interference, restriction and control. The question as to what shall be done in the way of control of these new trust companies is very important. It would be a great mistake for the different States to allow the national banking system to be broken down or seriously weakened by new organizations which are able to do so because they are less carefully examined and controlled than the national banks. The national system has furnished most excellent banks for the regular commercial banking business. not likely to be an improvement to have this replaced by any system of State banks. Much less is this likely to be the case if the inducement to go into the State systems is greater freedom from control, weaker reserves and less careful management. The modern trust company has been called the highest example of modern commercial organization, and of many of the largest and best companies this is doubtless true. The regular trust company business is a very important part of any financial system, and calls for the highest degree of character, honor and ability. I quote from a recent writer on this subject, and agree with all that he has said in regard to the trust companies: "Trust companies are formed for the execution of the most sacred duties that can be imposed by man. The care of the property and welfare of the helpless and the dependent, the widow and the orphan, the feeble and ignorant ones, who are such an easy prey for the unscrupulous, is part of their mission; to carry out the wishes of the dead, who put faith in the company and entrusted their dearest interests to it for years in the belief that it always would be true and honest; to meet the expectations of the living, who entrust their property to it in full confidence that it always will be faithful and capable; this demands a conscientiousness and thoroughness, which must always serve as a high ideal and inspiring stimulus to right-minded men. When, however, the trust companies cease to do this character of business or attempt to add to it not only ordinary commercial banking, but in many cases underwriting and promotion of all sorts of new enterprises, the case becomes entirely different. It can hardly be said to be a reasonable or proper regulation of the banking and trust company business to allow the organization, under the same law, of concerns which not only have the power to act as trustees in all of the important capacities which the writer has enumerated, but which also have the power, if the management is so inclined, to do a general commercial banking business with little or no cash reserve, and even to underwrite an issue of bonds and securities several times in value the combined capital, surplus and deposits of the so-called trust company, as happened in a recent notable case. In another instance trust companies organized under the laws of certain Eastern States engaged in the organization of national and other banks in the Western States and attempted to pay up the capital with certificates of deposit in the so-called trust company. It is true most of the older trust companies have been splendidly managed in every respect, their officers and directors are men of the highest character who can safely be trusted with any business, whether it is in the nature of a trust, commercial banking, promotion, or underwriting. It is not such concerns as this which need control and regulation. Their business will be well and properly done in any event, and probably will come well within the terms of any law intended to control this class of business. Such concerns as this have nothing to fear from regulation, nor should they oppose the attempts to place reasonable safeguards upon the business for the protection, not only of their depositors and creditors, but of the entire country. If there is any reason why a national bank should maintain reserves against commercial deposits, the same reason will apply to commercial accounts in any other bank, whether called a trust company or not. A trust company with a large business in its trust department, if it also has a banking or savings department, owes it to its customers and to the public to see that the banking department is not so conducted as to endanger its trusts in the slightest degree. The very existence of those trust obligations should make its banking department ultraconservative and careful, as so many of them are. The trust company, whose chief business is in its banking and savings department and is carefully and conservatively managed, is more interested than anyone else to prevent reckless and incompetent, or dishonest, men from securing similar charters which will permit them to run competing banks, without proper reserves or other safeguards prescribed by experience. Frederick D. Kilburn, Superintendent of the New York State Banking Department, says in regard to reserves in Trust Companies for March, 1904: "After mature consideration of the subject and a study of the existing conditions, I am of the opinion that the whole matter should be regulated by statute. Before this is attempted, however, the banks and the trust companies should agree upon the provisions of any proposed legislation in this, direction. All feelings of spite and selfishness, if any exist, should be forgotten. The interests of any particular institution, except as it may be in harmony with the interests of all, should not be considered. The law should be general in terms, and, if any class of deposits are exempted from its operation, sound reasons should be given for the exemption. "I am well aware that many trust company officials, and some bank officials, will not agree with my view. Some think, and perhaps not without reason, that they are able safely and conservatively to conduct the affairs of their institutions without interference of this or any other kind; but others will sometime take their places, and then perhaps a less experienced and less conservative management will be in control. The whole matter should be adjusted with exclusive regard for the needs of the situation, and with the sole purpose of conserving the interests of all concerned. In the meantime, it should be remembered that trust companies and banks alike are in the main founded upon the same general principles and are dependent to the same degree upon public confidence for success.” In his annual report for 1904, Mr. Kilburn also says: "The right of domestic trust companies to hold stocks in private corporations might wisely be definitely defined, their right to engage in underwriting schemes unqualifiedly denied, and the obligation imposed upon them to carry a legal reserve. As a part of this latter proposition, I am confident that it would be advisable to require also that these institutions and the State banks in New York make weekly reports similar in scope to those submitted by the Clearing House banks and the non-member banks to the Clearing House Association." Whatever regulation or control there is to be of the trust companies must come, for the present at least, from the State governments. Federal control of the national banks has been so satisfactory and successful that there is some desire expressed for federal control of other banks and trust companies. There has not been, however, so far as I know, any practical suggestion made by which these institutions can be forced or persuaded to submit to Federal control, especially if it is to be more severe than that now exercised by the States. Federal control, therefore, does not seem to me to be a present practical question. Do not misunderstand this as in any degree an attack on the trust companies or as unjust criticism of them by a partisan of national banks. The trust companies can have no better friend than I am. I believe in them thoroughly; I recognize the great value of their past services and their possibilities for good in the development of our country in the future. There is abundant field and scope for both the national banks and trust companies, but they should work in harmony, aiding and supplementing each other. I speak in the interests of both, and in advocating more careful control and conservative management, I do so in the interest of the many splendid banks of both kinds whose able, honest, conservative management, with or without restrictive laws, is entitled to the protection which only such laws can give them against not only the competition but the danger to their institutions and the whole country which may come from institutions whose management is |