CONTROL AND SUPERVISION OF TRUST COMPANIES

By HONORABLE Frederick D. KILBURN

State Superintendent of Banks of New York

In discussing the general question of the control and supervision of the trust companies in the country by the respective States in which they are located, I take it for granted that there can be no serious division of opinion. It is the general impression and desire among thinking men, who have given the subject consideration, that adequate and thorough control of institutions of this kind by the State is essential alike to their own legitimate success, and to the safety of the public. And especially is this true in view of the great development of our country's resources, the vast extension of its influence, the undreamed of expansion of its domain and the wonderful growth and combination of business enterprises all over the country which the last ten years of our history have witnessed. Not until recent years has there been a State supervision of these institutions in any comprehensive sense, or by general laws regulating their formation and control.

Trust companies are private corporations created by the State. They are privileged to take charge of private estates, and to act as executor, administrator and guardian-relations which imply the most sacred trusts. Their powers and privileges in other directions are varied and extraordinary, and altogether their character and purposes are of such a nature that there should be the closest and most efficient State control and supervision over them that can be devised, to the end that, so far as human foresight can prevent, there shall be no betrayal of the interests committed to their care, nor failure by them to meet promptly and faithfully their engagements. But this judgment is not intended to imply that an administrative bureau should undertake a regular examination of each specific trust, nor do I believe that experience has shown this to be necessary. If it be made certain that the affairs of a corporation of this class are being managed in general with prudence and wise judgment, that its investments are of a character carrying the

guaranty of a reasonable income return and of safety-in a word, if general examinations show a company solvent, strong and prosperous, and conducted in accordance with the law-the question of the proper discharge of each specific trust can be left without risk to the company and to the determination of the Courts at the final accounting, when, if any default or wrong be shown, the company being responsible and abundantly able to pay, correction or reparation may easily be enforced.

All trust companies organized in the State of New York prior to 1887 were formed under special charters granted by the Legislature. The first such charter granted was to the Farmers' Fire Insurance and Loan Company, now the Farmers' Loan and Trust Company of New York City, one of the largest and most conservative companies in my State. It was chartered in 1822, and was given the power to make loans upon the security of bonds and mortgages, or upon conveyance of improved farms, houses, manufactories, or other buildings, or on any other real estate, or on the security of corporate stocks. It was also empowered to carry on the business of fire and life insurance. It was prohibited, however, from taking deposits, or from discounting promissory notes, bonds, due bills, drafts or bills of exchange; nor was it allowed any banking privileges or business whatever. The same year the charter was amended to confer upon the company the power to act as trustee.

Other charters were granted from time to time, all containing special privileges to a greater or less extent, such as insurance, title guarantee and mortgage features.

Many of the savings banks' charters, which until recent years were also the creatures of special legislation, carried trust company powers. Some trust companies were required to report to the Comptroller of the State, and others to the Supreme Court. The powers and privileges granted to one differed perhaps radically from those granted to another. Some of the charters were extremely liberal in their provisions, and included powers which would be regarded as inconsistent with the proper functions and purposes of these institutions as they have developed and as they exist to-day. There was no supervision, except of a superficial and perfunctory character. There was no comprehensive system of reports, and the whole matter was in a chaotic condition. Notwithstanding all this, and though

there have been instances of voluntary liquidation and of merger and consolidation, there have been but two failures of trust companies in the history of the State where the depositors and general creditors were not paid in full. One of these failures was that of the National Trust Company, which occurred in 1877, and the other The American Loan and Trust Company, occurring in 1891.

In 1887 a general act was passed in the State of New York regulating the formation of trust companies and defining their powers and privileges. This act provided that any number of natural persons (not less than thirteen), three-fourths of whom should be residents of the State, might associate themselves together for the purpose of organizing a trust company; that in no material respect should such company's name be similar to the name of any other trust company organized and doing business in the State; that the certificate should state the place where the business was to be transacted, the amount of the capital stock and the number of shares into which the same should be divided, and the name, residence and post office address of each member of the company; the term of the company's existence, which should not exceed fifty years; and the declaration that each member of the association would accept the responsibilities and faithfully discharge the duties of a trustee if elected to act as such. It provided that the certificate should be executed in duplicate, one of which should be filed in the office of the Clerk of the county wherein the trust company was to be located, and the other in the office of the Superintendent of Banks. It also provided for the publication for four weeks of a notice of intention to organize. It defined the powers and duties of trustees. It provided that the capital stock must be at least five hundred thousand dollars, except that trust companies with a capital of not less than two hundred thousand dollars might be organized in cities the population of which did not exceed one hundred thousand inhabitants.

It also provided that the capital of the company should be invested in bonds and mortgages on unincumbered real estate in the State of New York, worth at least double the amount loaned thereon, or in stocks of the State of New York, or of the United States, or in the stocks or bonds of incorporated cities or counties of the State of New York duly authorized to be issued. It provided further that all trust companies organized under the act should be

corporations possessed of the powers and functions of corporations generally, and as such should have power:

To make contracts;

To sue and be sued, complain and defend, in any court as fully as natural persons;

To act as fiscal or transfer agent of any state, municipality, body politic or corporation; and in such capacity to receive and disburse money, and transfer, register and countersign certificates of stock, bonds or other evidence of indebtedness;

To receive deposits of trust moneys, securities and other personal property from any person or corporation, and to loan money on real or personal securities; To lease, purchase, hold and convey any and all real estate necessary in the transaction of its business, or which the purposes of the corporation may require, or which it may acquire in the satisfaction, or in partial satisfaction, of debts due the corporation under sales, judgments or mortgages;

To act as trustee under any mortgage or bond issued by any municipality, body politic or corporation, or accept and execute any municipal or corporate trust not inconsistent with the laws of the State;

To accept trusts from and execute trusts for married women, in respect to their separate property, and to be their agent in the management of such property, and to transact any business in relation thereto;

To act under the order or appointment of any court of record as guardian, receiver or trustee of the estate of any minor the annual income of which is not less than one hundred dollars, and as depositary of any moneys paid into court;

To manage estates, collect rents, etc.;

To take, accept and execute any and all such trusts and powers of whatever nature or description as may be conferred upon or intrusted or committed to it by any person or persons, or any body politic, corporation or other authority; To purchase, invest in and sell stocks, bills of exchange, bonds and mortgages, and other securities, not including, however, the power to issue bills to circulate as money;

To be appointed and to accept the appointment as executor or trustee under the last will and testament, or as administrator with or without the will annexed, of the estate of any deceased person, and to be appointed and to act as the committee of the estates of lunatics, idiots, persons of unsound mind and habitual drunkards.

The act also provided that no loan should be made by any trust company, directly or indirectly, to any trustee or officer thereof.

It was also made the duty of the Superintendent of Banks to ascertain from the best sources of information at his command whether the general fitness for the discharge of the duties appertaining to such a trust of the persons named in the certificate was such as to command the confidence of the community in which such trust