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There is considerable difference between the State laws governing trust companies and those governing State banks. As a rule, the former are much less hampered by restrictions in the character of their business. In a later chapter the laws of the different States will be discussed in detail.

It is evident that there is a close resemblance between the business of the savings department of the trust company and that of the Savings bank, especially of the incorporated Savings bank, which is the usual form of such institutions outside of the Eastern and New England States. Both are after savings accounts. With regard to the mutual Savings banks, particularly, the theory is that such institutions exist especially for the accounts of those whose savings are comparatively small, while the trust companies are supposed to exist primarily for the safe keeping and accumulation of larger accounts. In practice, however, this distinction is not always maintained, although it is probably true that the average savings account of the trust company is larger than that of the mutual Savings bank. But trust companies usually advertise that deposits of more than five or ten thousand dollars will not be received at the regular interest rates. The minimum deposit received by either institution is usually one dollar.

In this connection it is worth while to call attention to the important service that the trust company, as well as the Savings bank, is rendering in the way of adding to the available money supply of the country. Through the medium of a large number of small accounts they gather from the people of their neighborhoods large sums that would otherwise be kept in the traditional stecking or in private safes. These funds are thus placed at the disposal of the community for use in carrying on its business, and make possible enterprises that benefit the whole people, and that would otherwise fail for lack of available funds. Particularly is this the case with reference to those companies in outlying parts of large cities, or in other localities where banks would not find enough business to keep them alive. As an instance of this, the writer knows of a trust company located outside the business district of a large city which in ten years accumulated deposits of over two millions, the larger part of which came from persons who had not theretofore deposited in banks at all. Here was a large sum put into active circulation and so made productive, to the mutual benefit of the depositors, the bank and the community at large.

MISCELLANEOUS FUNCTIONS.

Occasionally trust companies perform functions not mentioned in the foregoing discussion. For instance, some companies, in the far Western States particularly, write fire insurance as agents. The wide powers granted by the laws of most States permit trust companies to undertake almost any kind of financial business, and the result is that companies

in different localities take up special lines of business for which there happens to be a field.

It is usual for trust companies to offer to customers the services of their officers for legal and financial advice on ordinary matters that involve no complicated questions. This does not mean, of course, that the company undertakes to do the lawyer's work in such cases. But many of its customers are wholly ignorant of the most common principles and practices in business and commercial law, and as a result are greatly profited by advice in what seems to the experienced a very simple matter. Much litigation and loss, and many foolish "investments" are prevented by a little advice to such persons. The banker sometimes performs similar services for his customer, but the usual bank customer is acquainted with business procedure, while a considerable number of trust company customers are not so acquainted.

Complaints are heard in some quarters that the trust company is encroaching upon the field of the lawyer. Undoubtedly this is true as regards the handling of estates and the performance of many duties of a fiduciary nature. On the other hand, the trust company gives employment to a large number of lawyers. Every company has its attorney or force of attorneys, and trust officers are usually chosen from the ranks of those who have had legal training. Trust companies make it a practice, when a lawyer brings them a trust, to retain him as attorney for that trust whenever special services are needed. Furthermore, the trust company is a great aid to the lawyer in many ways. He often needs to select for his clients a trustee, guardian, receiver, assignee, depositary, etc. He is often called upon to make investments for his clients—a responsibility that many lawyers do not care to assume. In the practice of corporation law the lawyer finds the trust company of special use to him. Its facilities for the accurate keeping of accounts, preparing reports, caring for securities and managing estates appeal to many lawyers who have not the time or the inclination to assume other than the purely legal part of the work. To a great extent the trust company supplements and assists the lawyer of large practice.

SOURCES OF EARNING POWER.

It is evident that the sources of earning power of the trust company are much more numerous than those of the bank. It may do all that the bank may do, and many things besides. One writer66 has pointed out the fact that the trust company has developed all the earning power of an individual, thus adding greatly to its profits, as well as to its usefulTo get at the possible earning power of the trust company, therefore, one must remember that it is not confined to the profits from the interest on funds under its care in the form of capital and deposits,

ness.

66 Guy Morrison Walker: pamphlet on "Trust Companies."

but adds fees for its services in trust capacities of ordinary kinds and special fees for special services. The tremendous earnings of some trust companies have been due more to the skill of their officers in performing services of a more or less personal nature than to the natural earnings of their banking departments or the regular fees on trust work. It is also true that during the flush times preceding the year 1903, large sums were made by many companies through underwritings and stock investments. These means of profit were, to say the least, hazardous, and in many cases the profits of this kind of preceding years have been reduced or turned into losses since 1903. The depreciation of values beginning in 1903 brought about a healthful reaction in the policy of some companies.

THE TRUST COMPANY STILL IN THE FORMATIVE PERIOD.

One thing that must strike the careful observer forcibly is that the trust company as an institution is still in the formative period. As has been already pointed out, it travels ahead of statute law, such laws usually being formulated to govern a business already established, rather than outlining a business to be put in operation, as was the case with the National Bank Act. As a consequence it is too early to determine the exact form into which experience will cause the trust company business to crystallize.

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That there is and ought to be a growing demand for more careful regulation and examination of trust companies in many States is evident, and the interests of both the public and the trust companies themselves will be subserved by a wise response to such demand. On the other hand, it would be a misfortune if unnecessary restrictions were imposed, which would result in preventing the trust companies from developing in harmony with the changing conditions of our American life. In this power of adjustment to existing conditions lies the secret of the great success of these institutions, not only in making earnings for themselves, but as well in serving the general public. Those bankers who, feeling the competition of trust companies, wish to have the laws of various States amended so as to put the banks in better relative position, should bear this fact in mind. If changes are to be made in the laws, wisdom dictates that such changes be in the line of removing any needless restrictions on the work of the banks, if such exist, rather than imposing any needless restrictions on the work of trust companies.67

The fact is that, allowing for some exceptions, the methods of trust companies are, on the whole, sound business methods, attended with as much safety to the public and to the companies as those of the banks. Besides this they have the great advantage of being better adapted to present needs, and of being able to adapt themselves to new needs when they present themselves.

67

See Guy Morrison Walker: pamphlet on "Trust Companies," pp. 14-16.

CHAPTER III.

THE ORGANIZATION OF TRUST COMPANIES.

HE question as to whether there is a sufficient field for the organiza

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any to

tion of a new trust company in any given community is one which should be given careful study before steps are taken for such organization. During the flush times preceding the depression of 1903 and the panic of 1907 some trust companies were undoubtedly organized for which there was not a sufficient field. Many of them have passed out of existence, involving losses to their stockholders. On the other hand, trust companies have been started in places where the conservatives could see no possible chance for success, and have become prosperous and useful institutions.

Whether the trust company form of organization is to be preferred to others must, of course, depend upon the circumstances of the time and place. The present tendency, however, is undoubtedly towards preferring the trust company form except where the conditions clearly call for a National bank; and many State banks and incorporated Savings banks, as well as some National banks, are being changed to trust companies. Because of their wide powers and of the privileges which they enjoy, these institutions often thrive where ordinary banks could not make a living.

ELEMENTS CONTRIBUTING TO SUCCESS.

The success of a new institution will depend very largely upon the men behind it. A poorly "backed" company will have difficulty in making a success even in a good field, while companies with the proper backing and officers have often prospered in fields that seemed fully occupied. If a new company is projected, therefore, the question of prime importance at the start is, Who will be its stockholders, its directors, its officers? First of all, they should be men whose standing in the community is unquestioned-men of probity and character. Men who have money and nothing more may help the bank at the start, and may bring it much business, but they cannot help in building up business among the general public, whose confidence must be obtained before the new institution can meet with pronounced success. While this is conspicuously an age of money and money power, there are, fortunately, some things which mere money can not do, and one of them is to secure the confidence of the public.

There is no substitute for character as a means of leading the people to put trust in a financial institution.

The shareholders should be men whose interests lie in the community where the company is to be located, thereby insuring their continued support of the enterprise after it is launched. An institution with good

prospects is almost always able to pick its stockholders, and should avoid admitting those who wish to subscribe merely as a speculation. Subscribers are often required to pledge a certain amount of business to the new company for a given period, and to state what business they think they can bring from others. If the concern is to do a general business, not confining itself to a specialty, the stockholders should be so selected as to represent as many different lines of business and professions as possible. Some difference of opinion exists as to whether it is better to have a large number of stockholders with few shares held by each, or to limit the number and increase the holdings. The former plan usually insures a larger group of customers from the start, and gives the general public more interest in the project. The latter plan permits of more unanimous and concerted action, and is sometimes of convenience. As a rule, however, the former plan is preferable.

STEPS PRELIMINARY TO THE ORGANIZATION.

When it has been decided that a company shall be organized, a meeting should be called to discuss preliminary plans and to prepare papers in application for a charter. Blank forms for this purpose are usually supplied by the State banking department, where such a department exists, or by the Secretary of State. In any case the forms should be prepared by a competent attorney, and his services should be utilized during all the proceedings until the company has begun business. The minutes of the meetings should either be kept by him, or else be subject to his examination and approval. At this first meeting a committee should be appointed to receive subscriptions to the stock and to apportion the stock carefully among the bidders.

From this point on the plan of procedure will depend upon the laws of the State in which the company is to be incorporated. Three plans of incorporation are in vogue. In some States trust companies are incorporated only by special act of the Legislature, following the usual antebellum method of chartering State banks. In other States special laws for the incorporation of trust companies have been passed. In the remaining States these companies must be organized under the general laws for the incorporation of banks or of corporations for profit.

As an example of the procedure in those States having special laws for the incorporation of trust companies, that prescribed by the laws of the State of New York may be taken.

INCORPORATION OF TRUST COMPANIES IN NEW YORK.

Since 1887 most companies in the State have been incorporated under the general trust company law of that year, though some have been incorporated under the old plan of a special act of the Legislature. Under the general law, thirteen or more persons may form such a corporation. They must first publish a notice of intention to organize a trust com

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