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 entire 15% was to be in cash in vault. Thus what had been an unreasonably high reserve requirement for trust companies was revised in such a way as to make it a requirement comparable to the reserve requirements of commercial banks. A good way to start a financial panic, then, is to suddenly increase reserve requirements, after commerce and enterprise, business confidence and banking facilities have accommodated themselves to a status quo. The rise in reserve requirements will cause sudden deflation of credit and certainly precipitate in a panic if the market is strained by any unusual demands at such a time.2

It has been said of the trust companies that not a dollar of deposits was lost, but after the panic had subsided they were able to reopen their doors or were liquidated with no losses to depositors.

With an increasing amount of commercial banking business the problem of clearing checks by the trust companies became more and more difficult and in 1909 the trust companies were seriously considering the formation of a separate clearing house association for the trust companies, or the formation of a "bank for trust companies" to be a member of the Clearing House and take care of trust company checks. However, no such action was taken, and the episode was finally closed in May, 1911 when the trust companies were again admitted into the existing Clearing House Association.3

Thus did the trust companies receive their final initiation into the coveted field of commercial banking business; they passed muster, they survived in the battle. To-day the trust companies, not only for New York, but for the country as a

1 Laws of New York, 1908, ch. 152.

2 Cf. Sprague, O. M. W., History of Crises under the National Banking System, pp. 216-318.

Bankers' Magazine (N. Y.), Vol. 82 (June, 1911), pp. 714-5; Trust Companies, Vol. 12 (May, 1911), pp. 326–31.

whole, constitute an important part of the banking strength of the United States.

Federal Supervision of Trust Companies. As early as April, 1904, it was suggested that trust companies might be supervised by the federal government,' and in his annual report of June 30, 1904, the Secretary of the Treasury recommended federal supervision of trust companies. Trust company officials and others took up the subject and there appeared a number of articles discussing the pros and cons of federal supervision, until finally in 1905 it was pointed out that the federal government did not have the power to regulate or control the trust companies.2 Yet in December, 1905, a bill was introduced into the House providing for federal incorporation and supervision of the insurance and trust companies of the United States.3 During the panic of 1907 President Roosevelt and Secretary Cortelyou considered federal supervision of trust companies. In 1908 in a speech in the House of Representatives on the banking laws of the United States there is a suggestion of federal supervision of trust companies. In 1912 an attempt was made to require at least a desirable amount of publicity concerning trust company business by the introduction in the House of a bill "to provide for publication by national banking associations and savings banks and trust companies of the reports of resources and liabilities required to be made by them to the Comptroller of the Currency. "5 The bill never became law, and federal supervision of trust companies is now attained only to the extent that trust companies are members of the federal reserve system and hence subject to the rules and regu

1 Ridgely, Wm. B., "Government Control of Banks and Trust Companies," Annals of the American Academy of Political and Social Science, Vol. 24 (July, 1904), pp. 17-26; Trust Companies, Vol. 1 (April, 1904), pp. 119-26.

* Kilburn, F. D., "Control and Supervision of Trust Companies," Annals of the American Academy of Political and Social Science, Vol. 24 (July, 1905), pp. 29-42.

3 Congressional Record, 59th Congr., 1st sess., Vol. 40, Pt. 1, p. 55 (H. R. 475), Dec. 4, 1905.

♦ Ibid., 60th Congr., 1st sess., Vol. 42, Pt. 7, pp. 6253–62, 6259, 6261. Ibid., 62d Congr., 2d sess., Vol. 48, Pt. 6, p. 6101, May 8, 1912.

lations of the Federal Reserve Board and the examination of the Federal Reserve Bank, which is largely coöperative with state banking supervision.

This supervision has nothing to do with the fiduciary activities of the trust companies. The supervision of the trust business is under the control of the state probate courts and the state banking departments. Even national banks, to the extent that they exercise fiduciary powers, are not under federal supervision, but are rather placed by the Federal Reserve Act under state court and banking supervision.1

State Supervision. The Trust Company Division of the American Bankers' Association from an early date has been seeking to obtain better and more uniform state supervision of trust companies. In 1908 a committee made a study of the situation and presented a report which gave the salient features of adequate state supervision.2 Partly as a result of this agitation on the part of the trust companies for supervision, every state in the United States now has some sort of trust company banking supervision.

The principal need at the present time is a reform in the direction of standardizing those features of state and national supervision which give rise to a competition between state and federal authorities to increase the number of banking institutions under their respective authority. "Banks operating under federal and state charters as well as supervisory authorities are split up into opposing camps on issues of policy and legislation instead of submerging their respective claims to appeals for more constructive advancement and obligations of public service. . . . There is crying need for the type of masterful leadership that will marshal the potential influence, wielded in common by national and state banks as well as trust companies, in the direction of united effort for better and more

1 Cf. Jay, Hon. Pierre, "Basis for More Effective Federal and State Banking Supervision," Trust Companies, Vol. 43 (Sept., 1926), pp. 271-3. 2 Herrick, Clay, "Trust Companies. Uniform Laws and Reports," Bankers' Magazine, Vol. 77 (Sept., 1908), pp. 375-7; Proceedings of the Trust Company Division', A. B. A., 1908; and "Model Trust Company Law," Proceedings of 1913; pp. 381-7 and 1914, pp. 357–9.

uniform laws, higher standards of supervision, quality of service, acceptance of principles of Federal Reserve and Clearing House coöperation, more enlightened employment of the instrumentalities of credit in both domestic and international spheres of operation . . . and wasteful excess of competition and unsound practices should be eliminated. . . . One of the unfortunate consequences of the rivalry between federal and state chartered institutions is the evident disposition of the federal and state authorities to grant charters without due consideration to the responsibility and character of the promoters." 1

Sooner or later it must be realized that the inherent nature of a banking institution is such that too much competition tends to lead to unsound banking practices, to inflation of credit and all of the evils which result from inflation. Similarly, too much competition among corporate fiduciaries would tend to undermine the necessity for caution in the investment of personal trust funds and in the setting of standards for the acceptance of corporate trusteeships in connection with bond issues.

If state supervision proves to be unable to bring about desirable reforms and the needed amount of standardization, the national government will find a constitutional means of taking upon itself the entire task of bank supervision for the country. When the states were found to be ineffectual in the solution of the currency problems, the federal government took jurisdiction by means of the National Banking Act of 1861, and taxed state bank note issues out of existence; when state control failed to solve the railroad problems of the 1870's and 1880's the federal government stepped in with the Interstate Commerce Commission Act of 1887; when the states proved ineffective in the control of industrial monopolies, the federal government took a hand by the passage of the Sherman Anti-Trust Act of 1890 and the Federal Trade Commission and Clayton Acts of 1914. The weaknesses in our banking system due to inadequate state supervision which resulted in a series of panics and financial crises from 1873 to 1907, finally re1 Editorial, "Wherein American Banking Development Falls Short," Trust Companies, Vol. 42 (Jan., 1926), p. 2.

sulted in coöperative federal supervision with state supervision of banks by means of the Federal Reserve Act of 1913. While the constitutional impediments in the way of federal supervision of corporate fiduciary functions seem to be insurmountable, particularly in so far as such functions relate to the devolution of private property, yet such federal supervision is not an impossible contingency in the event of failure on the part of the states to produce satisfactory results.

Consolidation Movement and Departmentalization of Services. An important feature of trust company development since 1900 has been the widespread tendency towards the formation of larger and larger financial institutions, each institution containing all of the variety of departments of services formerly represented by separate institutions.

The trust company consolidation movement is said to have begun in 1903.1 In 1904 the McVicker Realty Trust Company consolidated with the Empire Trust Company of New York City, the Trust Company of America with the North American Trust Company, which had already absorbed the New York Trust Company and the International Banking and Trust Company; and in the same year occurred the merger of the New York Security and Trust Company and the Continental Trust Company of New York City. The absorption of national banks by trust companies all over the country became a subject of editorial comment in 1904. In 1905 the Central Realty Bond and Trust Company and the Lawyers' Title Insurance Company of New York merged; and the American Trust and Savings Bank and the Federal Trust and Savings Bank of Chicago consolidated. In 1905, the North American Trust Company, the Trust Company of America, and the City Trust Company merged into the Trust Company of America. In 1907 the Trust Company of America and the Colonial Trust Company merged. In the same year there came the merger of the Equitable Trust Company and the Mercantile Trust Company. In 1910 began the great merger of the Morgan trust companies when the Guaranty Trust Company, the Morton Trust Com

1 Trust Companies, Vol. 4 (June, 1907), p. 358.