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.

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.6 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.

TH

CHAPTER III.

THE ORGANIZATION OF TRUST COMPANIES.

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

pany, at least once a week for four weeks, in a newspaper to be designated by the Superintendent of Banks, in the city or town where such trust company is proposed to be located; and a copy of such notice must be sent at least fifteen days before the filing of the organization certificate, to each trust company organized and doing business in the city or town where such company is proposed to be located. The State banking department furnishes a form for this notice, which reads as follows:

NOTICE OF INTENTION TO ORGANIZE.

We, the undersigned, hereby give notice of our intention to organize a trust company, under and pursuant to the laws of the State of New York, and in conformity with the statute in such case made and provided, we hereby specify and state as follows, to wit:

of

First, The names of the proposed corporators are:
Second, The name of the proposed trust company is
Third, The location of the proposed trust company is to be

In witness whereof we have hereunto affixed our signatures this

(Here must be placed the signatures of the corporators.)

day

The corporators, having complied with these requirements, must furnish proof of their having done so to the Superintendent of Banks. For the notices in the newspaper, ordinary proof of publication should be furnished. The department furnishes a form for the proof of service on the existing trust companies, as follows:

PROOF OF SERVICE OF NOTICE OF INTENTION TO ORGANIZE. State of New York,

County of

organize

SS.

being duly sworn, deposes and says that he is upwards of twenty-one years of age, and resides at No. in the city of ; that on the day of 190, he served a copy of the annexed notice of intention to upon each trust company hereinafter named by mailing to each of such trust companies a true copy of said notice at the post office in the city of inclosed in a sealed envelope and directed to each of such trust companies at its post office address, and prepaying the proper postage on each of said notices so mailed, as follows, to wit:

(Here must follow the names of the said trust companies.)

This document must be properly sworn to.

The certificate of organization must next be filed with the Superintendent of Banks, after the expiration of the required period as above stated. The form of such certificate reads as follows:

CERTIFICATE OF ORGANIZATION OF

KNOW ALL MEN BY THESE PRESENTS:

That we, the undersigned,

all being persons of full age and citizens of the United States, and a majority of us being residents of the State of New York, do hereby associate ourselves together for the purpose of forming a trust company, under and pursuant to

the laws of the State of New York, and for such purpose we do hereby, under our respective hands and seals, execute and duly acknowledge this organization certificate, in duplicate, and specifically state as follows, to wit:

First, The name by which the corporation shall be known is
Second, The place where its business is to be transacted is
Third, The amount of its capital stock is to be

of shares into which the same is to be divided is

dollars, and the number

Fourth, The name, residence and post office address of each member of the corporation are as follows:

(Here must be given the complete list of stockholders.)
Fifth, The term of existence of the corporation is

· years.

Sixth, the subscribers, the members of the said corporation, do, and each for himself does hereby, declare that he will accept the responsibilities and faithfully discharge the duties of a director therein if elected to act as such when authorized in accordance with the provisions of the Banking Law of the State of New York.

IN WITNESS WHEREOF, We have hereunto set our hands and seals, and executed this certificate in duplicate, this day of 190-.

(Here must follow the signatures of the stockholders, and they must swear to same before a notary in the usual form.)

Within sixty days after its acknowledgment, this certificate, which, as stated must be executed in duplicate, must be filed, one copy in the office of the county clerk of the county wherein such trust company is proposed to be located, and one in the office of the Superintendent of Banks of the State. A certified copy of the duplicate filed with the county clerk must be sent to the Superintendent of Banks, that he may have official notice of the filing of said duplicate.

The statute says: "Upon the receipt of any such organization certificate in the office of the Superintendent of Banks, if it shall not be in form and substance, or duly and properly acknowledged, as herein required, or shall not be accompanied by satisfactory evidence of the publication and service in good faith of the notice of intention to organize, the Superintendent shall refuse to file such certificate until it shall be amended in conformity to the provisions of this article. If fulfilling all of the prescribed conditions, the Superintendent shall indorse the certificate filed for examination, with the date of such indorsement."

Having filed the certificate, the Superintendent is charged with the duty of ascertaining as best he can whether the public convenience and advantage would be promoted by the proposed trust company and whether the men behind it are fit and possess the confidence of the public. If he is not satisfied of such fitness and advantage, he must, within sixty days after the filing of the certificate with him, notify the county clerk that he refuses to issue a certificate of authorization for such trust company.

If he is so satisfied, he must issue the authorization certificate within sixty days from the filing of the organization certificate, provided the organization tax has been paid to the State Treasurer and a receipt therefor is shown, and provided that he has ascertained by an examination that the requisite capital of the proposed corporation has been fully