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solvent in July, 1874, and its failure was the source of great distress among the poor negroes who had trusted the institution fathered by the Government. The depositors numbered 72,000, scattered over thirteen States. The liabilities at the time of failure were $3,037,560; the amount paid creditors, after a delay of several years, finally amounted to sixty-two per cent. of their claims.38
COMPTROLLER KNOX'S CRITICISM OF SOME OF THE TRUST COMPANIES.
Among other companies that suspended during the panic of 1873 were the Brooklyn Trust Company, the Union Trust Company, the National Trust Company, and the Warehouse Security Company, of New York. The loose methods pursued by many financial institutions and the craze for speculation and money-getting, which were largely responsible for the panic, called the attention of the Comptroller of the Currency to the different kinds of banking organizations. Among these the trust companies did not escape his attention. In his report for 1873-74 the Comptroller (Hon. John J. Knox) says:40 "Trust and loan companies are usually organized, by special State statutes, in the large cities. Their capitals, deposits and business are quite large in amount. Reports are not required, and inadequate when given. For instance, one of the largest of these institutions has published but one report in the year, and that report contains only a statement of its assets, without any mention of the amount due to its depositors, or of any of its liabilities. The Bank Superintendent of New York, in reply to an inquiry in reference to these institutions, says (under the date of July 31, 1873): “The trust companies of New York are peculiarly situated. Some are under the control of the Comptroller of the State; but the great majority of them are under no sort of supervision. This class of corporations has multiplied rapidly during the last few years. * * * I am not able to furnish a copy of the charter of any of these companies.' The Comptroller adds that he had received some reports from trust companies, but not enough to publish without making the report "delusive." He had better fortune the following year, and statistics of trust companies are found in the reports from 1875 on. In his report of 1875-76, the Comptroller says that the reports from Philadelphia were furnished cheerfully by the officers of the companies, "although they expressed doubt whether they could properly be classed as banking institutions."41 If they are living now their doubts are probably removed. The Comptroller also says: "Several of the companies state that they hold very large values, amounting to many millions, in trust, which are
38 Bankers Magazine, Vol. XXIX, p. 936, and Vol. XLII, p. 909; Keyes: History of the Savings Banks of the United States, Vol. II, pp. 558 et seq.
39 "Commercial and Financial Chronicle," July 26 and Aug. 30, 1873. Report of U. S. Comptroller, 1873, p. 90.
40 Page XLIII.
41 Page LX.
not the property of the companies, and are not, therefore, returned by them as deposits proper." The same thing is true to-day, and for this reason statistics of trust companies do not convey a correct idea of the amount of property actually under their control.
PROPOSED PUBLIC SUPERVISION OF THE COMPANIES.
Agitation to bring the trust companies under some sort of supervision was going on at this time in several States. The Bank Commissioners of Connecticut, in their report for 1872, recommended that instead of the annual returns to the Commissioners then required, there be quarterly reports, and that same be published in the newspapers.42 Such a law was enacted in 1872.1S Connecticut had five trust companies at the beginning of that year.
The Superintendent of Banking of New York, in his report of December, 1873, recommended that the trust companies be brought under stricter State supervision. At this time some of them were under no supervision at all, while some reported either to the State Comptroller, the Superintendent, or to a Judge of the Supreme Court.44 The Superintendent's recommendation was adopted, and the companies were brought under his supervision in 1874.
COMPETITION BETWEEN TRUST COMPANIES AND BANKS.
Evidences that trust companies were now beginning to attract some attention from the general public, and to cause considerable uneasiness among other classes of bankers, is found also in the increasing number of comments upon them in the financial papers as well as in the Reports of the Comptroller of the Currency. In THE BANKERS MAGAZINE for January, 1874,45 is found this statement regarding "Trust and Loan Companies": "They were intended as repositories for trust funds, for the accumulation of deposits to be loaned on mortgage, and for investments in Government loans; in other words, as savings banks on a large scale. Recently they have been converted into stock-jobbing concerns, apparently for the benefit of stock operators, and in large sums." The article refers to the remarks of the Comptroller of the Currency in his Report for 1873 (p. XLIII) already quoted. Two years later (April, 1876), the same magazine has this to say:" :46 "Recent events have led to some solicitude in regard to trust companies in this State, and the reports of these institutions have been scrutinized with unusual interest." On January 20, 1883, the "Commercial and Financial Chronicle" said:"7 "An important feature in our financial situation is the rapid extent dur-
42 Bankers Magazine, Vol. XXVII, p. 256.
43 Ibid., Vol. XXVIII, p. 184.
44 Cator, p. 51.
45 Bankers Magazine, Vol. XXVIII, p. 520.
46 Ibid., Vol. XXX, p. 777.
47 Vol. XXXVI, p. 917.
ing late years of the business of the trust companies of this State. Not very long ago their position was what their name implies-that is, institutions for safely keeping and managing trust funds. More recently they have been running into a general banking business, and now hold a position not very unlike the joint-stock banks of London, which take deposits on interest, loan them out as best they can, while leaving to the Bank of England the burden of carrying the reserve. In a similar manner the trust companies are dependent upon the reserve of the associated banks, while becoming active competitors for general deposits, very large lenders of funds on collateral securities and the leading buyers of paper in the market. * * If the future growth of these trust companies is to be measured by the past growth, it will not be long before they will carry deposits one-half or two-thirds as large as the banks." Two years later1s the same periodical, referring to the Report of the New York Superintendent of Banking, remarked: "He says the number of trust companies has increased beyond the wants of the State, and a general law will be a benefit, by helping to check their multiplication. In all this the Superintendent only gives expression of the prevailing opinion. Trust companies are needful, but only for certain well-defined purposes; they are misnamed and in some cases misleading when, in the garb of a trust organization, they exercise the powers of bank."
STEADY DEVELOPMENT OF THE TRUST COMPANIES.
Notwithstanding many such complaints as these, the trust company movement went steadily forward, and encroached more and more upon the field of the regular banks. To do this they had to overcome not only the hostile criticisms of the financial press, but the force of State legislation as well. In Pennsylvania, for example, the amendment to the Corporation Act in 1881,49 forbids trust companies to do a banking business. For many years the question was under discussion, whether Pennsylvania trust companies might legally receive demand deposits. As late as 1898 the Law Editor of THE BANKERS MAGAZINE expressed the opinion that it was not legal for them to do so.50 The companies actually did receive such deposits, however; and in 1900 their right to do so was established by decision of the United States Circuit Court of PennsylIt is still illegal for Pennsylvania trust companies to discount commercial paper, but they may buy it!
Another instance of encroachment upon the functions of banks in spite of questioned legality is furnished by the Missouri trust companies. In 1894 the Supreme Court of Missouri decided that trust companies are not banks, and may not receive deposits as banks.52 This
48 January 10, 1885. Vol. XL, p. 42.
49 Laws of Pennsylvania, May 24, 1881. Act 26, sec. 1.
50 Bankers Magazine, Vol. LVI, p. 100.
51 Cator, p. 18. Bankers Magazine, Vol. LXII, p. 561.
52 Bankers Magazine, Vol. L, p. 60.
failed to settle the matter, however. Four years later the same court passed upon the question again, and concluded that trust companies may not receive demand deposits, unless they pay interest.53 Hence the receiving of demand deposits by trust companies in that State now has legal sanction. No rate being specified by the court, the payment of merely nominal interest would suffice, so far as the law is concerned. There is a law of competition, however, which is another thing.
The examples just related illustrate how the trust company, unlike the National bank, has developed according to natural rather than artificial laws. The law and its interpretation have been moulded to suit the ascertained needs of the business, instead of the business being moulded to conform to the law. There are those who believe that this process has evolved a more scientific system of banking than that of the banks themselves.
GENERAL STATUTES REGULATING TRUST COMPANIES.
During the decade of the eighties the growing attention to the trust company as an institution was further evidenced in some of the States by the passage54 of general laws regarding this class of institutions. New York passed such a law in 1887, since which time companies have usually been incorporated under the general law, although some have been organized under special acts.55 We have already referred to the Corporation Act of 1881 in Pennsylvania, which dealt with trust companies. It was further amended in 1885.56 Illinois passed a trust company law in 1887.57 Several States passed laws during this period for the purpose of regulating or restricting the business of trust companies. This subject will be discussed more at length in a subsequent chapter.
GROWTH OF THE COMPANIES IN NUMBERS AND RESOURCES.
Returning now to the consideration of the growth of trust companies in number and resources, the task is much simplified by the availability of statistics which, while incomplete, furnish the means of forming a tolerably accurate idea of the progress of these institutions.
From the year 1875 or, the reports of the Comptroller of the Currency give statistics of the trust companies reporting to that official. These reports do not include all of the trust companies in existence at their several dates, as the Comptroller had no authority to compel the sending of returns from State institutions. The number of companies. reported for the year ended June 30, 1875, was thirty-five. This num
53 Ibid., Vol. LVII, p. 16.
54 The tendency to the passage of general laws was not confined to trust companies, however, but extended to other State banking institutions. See "State Banking in the United States," by George E. Barnett, p. 22 and passim.
55 Circular published in 1900 by the New York Superintendent of Banks, giving historical sketch and digest of banking laws.
56 Act of June 11, 1885.
57 Act of June 15, 1887.
ber is, of course, somewhat less than the number actually doing business, and it is impossible to learn the exact number. The United States Mortgage and Trust Company, of New York, has annually, since 1903, published a book entitled "Trust Companies of the United States," which gives complete returns from practically all of the trust companies in existence, with the dates of their organizations. An examination of this work shows that of the companies reported, fifty had been organized during or before the year 1875. But, as the writer has ascertained by correspondence with these companies, some of them were not organized at first as trust companies. On the other hand, as already shown, a number of trust companies organized in these early years have gone into liquidation, and their names do not appear in the book above mentioned. A rough estimate, however, shows that these two considerations about offset each other, and the number of companies in existence in 1875 was probably nearer fifty than thirty-five. The former number is insignificant enough as compared with the other financial institutions at that time. As against the thirty-five trust companies, there were in 1875, according to the Report of the Comptroller of the Currency for that year, 551 State banks, 771 Savings banks and 2,087 National banks. The trust companies had deposits of $85,000,000, while the State banks had $166,000,000, the Savings banks $924,000,000 and the National banks $679,000,000.
Of the thirty-five trust companies reported, New York State had twelve, Connecticut ten, Pennsylvania seven, Massachusetts five and Rhode Island one. The incompleteness of this list is shown by the fact mentioned by the Comptroller, that while Illinois is credited with no companies in the list, the Financial Editor of the "Chicago Tribune" reported that there were in Chicago, June 30, 1875, five trust companies, with aggregate deposits of $5,688,574.5
A general idea of the growth of trust companies from this time on will be gained most easily by reference to the charts presented herewith. Chart A is designed to show the growth in the number of trust companies year by year. The heavy line follows the number of companies in existence each year as reported by the Comptroller of the Currency. The dotted line follows the total number of companies organized at the close of each year, as shown by figures compiled by the writer from the work "Trust Companies of the United States, 1903," already mentioned. The heavy line shows less than the actual number of companies in existence at any given time; because, as already stated, the reports of the Comptroller do not contain complete reports of all the trust companies in the country. It is probable, however, that this line does indicate pretty accurately the relative gain, from year to year, in the number of com panies; and this is the essential thing that the chart is intended to show. It will be noticed that the general trend of the two lines is the same.
58 Report of U. S. Comptroller. 1875, p. XCVII.