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transfer, devise, bequest or otherwise, or which may be intrusted or committed or transferred to it or vested in it by order of any court of competent jurisdiction, or any surrogate, and to receive, take, manage, hold and dispose of according to the terms of such trust or power any property or estate, real or personal, which may be the subject of any such trust or power.

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, or 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.

IO. To accept for payment at a future date, drafts drawn upon it by its customers and to issue letters of credit authorizing the holders thereof to draw drafts upon it or its correspondents at sight or on time, not exceeding one year.

II. To receive, upon terms and conditions to be prescribed by the company, upon deposit for safe keeping, bonds, mortgages, jewelry, plate, stocks, securities and valuable papers of any kind, and other personal property, for hire, and to let out receptacles for safe deposit of personal property.

12. To purchase and hold, for the purpose of becoming a member of a federal reserve bank, so much of the capital stock thereof as will qualify it for membership in such reserve bank, pursuant to an act of Congress, approved December twenty-three, nineteen hundred and thirteen, entitled the "Federal Reserve Act"; to become a member of such federal reserve bank, and to have and exercise all powers, not in conflict with the laws of this State, which are conferred upon any such member by the federal reserve act. Such trust company and its directors, officers, and stockholders shall continue to be subject, however, to all liabilities and duties imposed upon them by any law of this State and to all the provisions of this chapter relating to trust companies.

$197. Reserves Against Deposits.

Every trust company shall maintain total reserves against aggregate demand deposits, as follows:

1. Fifteen per centum of such deposits if such trust company has an office in a borough having a population of two millions or over; and at least ten per centum of such deposits shall be maintained as reserves on hand.

2. Thirteen per centum of such deposits, if such trust company is located in a borough having a population of one million or over and less than two millions, and has not an office in a borough specified in

subdivision one of this section; and at least eight per centum of such deposits shall be maintained as reserves on hand.

3. Ten per centum of such deposits, if such trust company is located elsewhere in the State. Trust companies located in cities of the first and second class but not falling within subdivisions one or two of this section, shall maintain at least four per centum of such deposits as reserves on hand; and trust companies located in cities of the third class and in incorporated and unincorporated villages, shall maintain at least three per centum of such deposits as reserves on hand..

Any part of the reserves on hand in excess of three per centum of such deposits may be deposited, subject to call, with a federal reserve bank in the district in which such trust company is located and the reserves on hand not so deposited shall consist of gold, gold bullion, gold coin, United States gold certificates, United States notes or any form of currency authorized by the laws of the United States; but if any trust company shall have become a member of a federal reserve bank, it shall maintain such reserves with such federal reserve bank as are required by the federal reserve act and so long as it complies with the requirements of such federal reserve act with reference to reserves shall be exempt from the preceding provisions of this section.

If any trust company shall fail to maintain its total reserves in the manner authorized by this section, it shall be liable to, and shall pay the assessment or assessments provided for in section thirty of this chapter.

Suggested Readings on Chapter XI.

Kirkbride, F. B., Sterrett, J. E., and Willis, H. P.-The Modern Trust Company.

Herrick, C.-Trust Companies, their Organization, Growth, and Management.

U. S. Mortgage and Trust Co.-Trust Companies of the United States.

Perine, E. T.-The Story of the Trust Company.

Barnett, G. E.-Growth of State Banks and Trust Companies since 1865.

Questions and Problems on Chapter XI.

I. In most States, trust companies are not required to keep as high a percentage of reserves as commercial banks. Does this fact help or hinder them in their competition with commercial banks?

2. Compare the combined statements of the trust companies of the United States with the combined statements of the national banks with reference to (1) character of investments; (2) proportion of reserves; and (3) character of deposits.

3. With reference to the list of advantages of the trust company over the individual trustee, how many are really true of the average trust company? In each statement, consider whether there is any disadvantage connected with the way in which the trust company acts.

4. If you had an income of $1,000,000 a year, how might you use a trust company in taking care of your fortune? Assume that your fortune includes most forms of wealth. Tell the specific things the trust company could do in connection with each form of wealth.

5. The Federal Reserve Act permits certain national banks to have trust departments. What advantages might such a trust department have over an ordinary trust company? What disadvantages?

6. Some trust companies carry on extensive investment banking operations. How do such transactions show on their balance sheet?

7. Outline the organization of a trust company. If all of the departments are to be in charge of specialists, estimate the number of high-salaried men they would need. Estimate the amount of trust business necessary to pay expenses if fees average 2 of 1 per cent of the value of the property held. Estimate the population necessary to support the trust

company.

I.

CHAPTER XII.

GOVERNMENT REGULATION OF BANKING IN THE UNITED STATES TO 1860.

Basis.

The banks furnish part of the medium of exchange. Our present economic organization, based on complex division of labor, will not function properly unless exchanges can be conducted smoothly. Hence the government must take some interest in the way banks are conducted.

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Our present banking system is the outgrowth of an evolution and can best be understood by tracing the experiments in banking practice and legislation which are responsible for it. We ought not make, a second time, the mistakes of earlier days. Problems of Bank Regulation.

I. Charters.

The problem early arose as to whether, in addition to private banks, corporate bodies with limited liability should be chartered to carry on the banking business. Private bankers are of two sorts:

a.

b.

Big-investment bankers, who promote and finance

enterprises, sell securities, act as fiscal agents for corporations and government bodies, and sometimes deal in commercial paper.

Small bankers, who often combine banking with other business, such as real estate operations. They seek deposits among the poor, especially immigrants. In places where no organized bank exists, the storekeeper often acts as a banker. There are, however, objections to private banks.

The assets and liabilities are part of the private estate of the banker, and if he dies, his estate goes to the probate court, and the depositors are in the same position as the other creditors. The outside activities of the banker may make the bank insolvent, and if the private banker goes insane, his estate will be tied up.

At first, each bank was chartered by a special act of the legislature. This resulted in many evils. Charters would not be granted to men who belonged to the party out of power, and much of what we now call graft arose particularly in the distribution of the stock.

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The government early regulated note issues, because they entered so largely into circulation. The first question, naturally, is whether the banks or the government should issue the notes. Bank notes are alleged to be superior to government notes because:

a. The security is tangible. The bank has loans to back its notes, whereas the government gets no assets for most of its expenditures. Furthermore, the bank has its capital and surplus as a guaranty fund, but citizens cannot sue the government if it does not pay.

b.

C.

Reckless issues by the government may imperil the monetary standard.

The government cannot gauge the amount of notes needed as accurately as can the banks.

d. The government is unwilling to keep the necessary

e.

reserves.

There is a temptation for the government to meet expenses by inflating the currency.

Government notes are alleged to be superior to bank notes because:

a.

b.

C.

The furnishing of the medium of exchange is a

governmental function.

Banks may bring on panics by overissue.

In the past, many banks issuing notes have failed. d. Government issues insure safety and uniformity. There is a chance for private manipulation and private profit in bank notes.

e.

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