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most States do a banking business in spite of the lack of specific authority.
A noticeable thing about the powers usually granted to trust companies is the evident intention to place them on an absolute par with natural persons in their power to accept and execute trusts of every description. In a considerable number of the States the statutes carefully provide that such corporations may accept and execute any trusts not inconsistent with the laws of the State and of the United States, "to the same extent and in the same manner as natural persons."
Regarding the powers of trust companies in those States where their charters are granted only by special act of the Legislature, it is not possible to speak in general terms without an examination of each and every such charter, further than to say that as a general rule the powers so given are quite as wide and as varied as those given by general laws.
In the few States in which no trust company laws exist, and where special charters are not granted, considerable ingenuity has been necessary to carry on the trust business under the general corporation laws. Americans are not lacking in ingenuity, and the way has usually been found when needed. Thus, where the corporation had not the power to act as trustee, administrator, etc., individual directors or officers have taken such appointments, the companies have furnished the necessary security, and the business in its details has been performed by the company. In the State of Washington, before the passage (in 1903) of the Trust Company Law, some of the courts held, contrary to the usual legal ruling, that trust companies, being created artificial "persons," were therefore endowed with the powers of natural "persons." The wellestablished principle of the common law is that corporations possess only such powers as are specifically granted in their charters.
STATUTORY PROVISIONS FOR THE REGULATION OF TRUST COMPANIES.
Statutes intended to throw safeguards about the prosecution of the business of trust companies are found in a majority of the States and Territories having general trust company laws, and also among a number of the States in which such corporations are chartered by special acts of the Legislatures.
The methods commonly relied upon in such statutory attempts at regulation and supervision include provisions for a capital adequate to support the probable credit operations of the company and to provide security for its creditors; the accumulation of a surplus fund, to supplement the good accomplished by the provision for adequate capital; the double liability of stockholders; deposit with State authorities by the trust company of moneys or securities to be held in trust for the security of creditors of the trust department; restrictions on loans, on investments, on general liabilities and on the manner of conducting the trust business; a sufficient reserve fund; supervision by State officials, through reports of condition, and examinations.
Few States attempt all these methods of regulation, and the lack of uniformity in the State laws in this particular is noticeable and regrettable.
The suggestion has been made that Federal control of trust companies would be of advantage, especially to the end of securing uniformity in the laws governing such corporations. Doubt has been expressed whether, in view of the diversity of conditions existing in the various States and Territories, a uniform law is desirable, the opinion being held by many that to place all trust companies under uniform restraint, irrespective of local conditions, would unduly restrict the operations of these corporations. However this may be, a uniform law seems to be impracticable for other reasons. It seems possible, however, that effectual regulation might be obtained by concerted action on the part of trust company officials and their associations. The matter has already engaged the attention of the Trust Company Section of the American Bankers' Association.
The provisions of the various States and Territories regarding the minimum capital with which trust companies may be organized have already been discussed. It need only be added now that for the most part the provisions in this matter are all that could be expected. In most cases, the minimum capital required could hardly be raised without practically prohibiting the organization of trust companies. It is generally recognized that trust companies ought to have a larger capitalization than banks, and the amount required usually compares very favorably with that required for both State and National banks in the same communities; the minimum capital being as a rule from two to ten times as large as that required of State banks. In not over half a dozen States is the capital of trust companies as low as that of State banks.
The accumulation of a surplus fund is a proceeding that trust companies in most communities adopt as a matter of course, being impelled thereto by the manifest advantages of such a step as a measure of safety and as a means of gaining business in competition with other companies. having large surplus funds. Perhaps it is on this account that the legislators have not generally considered it necessary to place in the statutes a requirement for the accumulation of such a fund, although it may also be explained by the other provisions for safety adopted, which may have been thought ample in many cases. At any rate, only a minority of the States and Territories require the accumulation of a surplus fund by trust companies. Idaho, Louisiana, Michigan, New Mexico, New York, New Jersey, Ohio, Oregon, Washington and West Virginia require that before a dividend is declared one-tenth of the net earnings shall be carried to a surplus fund until such fund amounts to 20 per centum of the capital. Kansas and Texas require that the same percentage of earnings be carried to surplus fund until the latter equals one-half of the capital, and South Dakota, until it equals 30 per centum of the capital. Missouri requires that one-tenth of the net earnings he carried to a “guaranty"
fund, until the fund equals the capital. Only a few other States have provisions of this kind.
In some States, the double liability of stockholders, i. e., the provision that stockholders shall be liable for the debts of the corporation to an amount equal to the par value of their stock, in addition to full payment for such stock-applies to all corporations, trust companies among them. This was the case in Ohio, until in 1903, by vote of the people, an amendment to the constitution removing such double liability was carried. Just how this affects companies already existing is a question for the courts to decide. At present the laws apply the double liability of stockholders to trust companies in Colorado, the District of Columbia, Georgia, Idaho, Illinois (if doing banking business), Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota (constitutional requirement), Montana, New York, North Carolina, Rhode Island, South Carolina (if doing banking), South Dakota, Utah, Texas, Vermont, Washington, West Virginia and Wyoming.
Sixteen of the States require trust companies to deposit cash or securities of a specified character with State officials, to be held in trust as security for the company's creditors. As a rule these deposits are for the special protection of creditors of the trust department, and in such cases the deposit is ordinarily not required unless the company undertakes such trusts as those of executor, administrator, guardian, etc. few of the States, however, make this deposit a protection to all of the company's creditors, and require such deposit before the company is authorized to do business. The income from such deposits goes to the company so long as it is solvent. In several States the deposit is stated to be in lieu of giving special bond or security in the case of each trust, and need not be made if the company elects to give such special bonds instead. The amount of the deposit is $50,000 in North Dakota, Oklahoma and Texas; $100,000 in California; $200,000 in Missouri. In Illinois it is $200,000 in cities of 100,000 or more inhabitants, and $50,000 in smaller cities. In Michigan, it is fifty per cent. of the capital, but not more than $200,000 in amount; in Wisconsin, fifty per cent. of the capital, but not more than $100,000 in amount. The District of Columbia requires a deposit to the amount of one-fourth of the capital. Minnesota requires the deposit to be at least $50,000, and not less than onefourth of the capital. In New Jersey the securities so deposited must equal in value at least one-fifth of the liabilities incurred as assignee, receiver, administrator, guardian or trustee, unless the deposit amounts to at least $100,000, in which case it need be only one-tenth of such liabilities. The amount of the deposit in New Mexico is from $50,000 to $200,000. In New York it must amount to ten per cent. of the paid-up capital, but not less than $100,000 in amount in cities whose population exceeds one hundred thousand, $50,000 in cities of from one hundred thousand to five hundred thousand, $30,000 in cities of from twenty-five to one hundred thousand, and $20,000 in smaller places. Maryland requires fifteen per cent. of the capital, and not less than $30,000 in
amount; Virginia, five per cent. of the capital, and not less than $12,500 nor more than $25,000 in amount. In Ohio, the amount is $100,000 for companies whose capital is more than $200,000, and $50,000 for caller companies. Instead of a deposit, South Dakota requires trust companies, before undertaking any trust, to furnish a bond in favor of the State in an amount equal to the capital.
RESTRICTIONS IN RELATION TO LOANS.
The majority of the States having any kind of trust company legislation place restrictions on trust companies regarding their loans, their investments or their total liabilities. Such restrictions vary greatly in the different States, being quite ampie in some, and very meagre in others. The most common provisions are those forbidding trust companies to make loans on their own stock as security, and to make loans to their directors, officers or employees. Where the classes of investments for capital and trust funds are specified, the investments permitted are usually in municipal bonds, railroad bonds and mortgages secured by ample margin on real estate. The provision that neither the deposits nor the loans may be allowed to exceed ten times the amount of the paidup capital and surplus is found in the statutes of California, Illinois and Maryland; but in the last-named State it does not apply to funds deposited by order of the courts. Colorado forbids trust companies to invest in the stocks or bonds of private incorporated companies. Among other provisions sometimes found are those limiting the amount of loans to one person, firm or corporation, the limit often being ten per cent. of the capital and surplus, except that on loans secured by collateral it may be twenty per cent.
Many of the States provide that trust funds and accounts must be kept separate from all other funds and accounts of the company.
Largely as a result of efforts made by the American Bankers' Association, statutes have been passed in a number of States forbidding the use of the word "trust" in titles by any but regularly organized trust companies. The following now have legislation of this character: Alabama, California, Colorado, Connecticut, Hawaii, Indiana, Iowa, Kansas, Maine, Massachusetts, Minnesota, Mississippi, Montana, New Jersey, New York, Oregon, Rhode Island, Texas, Washington, West Virginia, Wisconsin and Wyoming.
TRUST COMPANY RESERVES.
The question of trust company reserves is of special interest. The fact that trust companies compete to so great an extent with banks has resulted in a growing demand from the banks especially, and from the general public to some extent, that trust companies be placed under the same regulations as banks, particularly in the requirement of a reserve fund. The battle over this point has been waged with special fierceness in New York, where, until 1908, there was no provision for reserves of
trust companies. That there is need for such agitation is shown by the fact that about a third of the States and Territories have no satisfactory requirements regarding reserves. This does not mean, of course, that trust companies in these States do not actually keep reserve funds, for the unwitten laws of business and of competition are quite as insistent upon obedience as are the laws of the statute books. The bestmanaged companies everywhere keep as large reserves as their business demands; and it is for the poorly-managed concerns that the statutory provisions are necessary, just as criminal laws are needed, not for the law-abiding people, but for the lawless. If the wisdom of State regulation in any particulars is conceded, the necessity of a requirement for an adequate reserve fund certainly must be.
An examination of the statutes shows that where the question has been taken up and acted upon by the State legislators, the opinion has quite generally prevailed that the reserve required to be kept by trust companies ought to be about the same as that required of State banks.
The following table shows the reserves required of trust companies in various States. Except where otherwise stated, the percentages refer to the ratio of reserve to aggregate deposits. In some cases the reserve named in the table applies to trust companies only when they do a banking business; in which case it is frequently the same as for banks.
15%, 2-5 in cash.
20% in cities of 200,000 or more; 15% elsewhere: 2 in cash. 15%, 4-15 in cash.
15%, % in cash.
25% of demand, 10% of time deposits.
25% of demand deposits, 8% in cash.
15% of deposits payable on demand or within ten days.
Massachusetts In Boston, 20% of aggregate deposits less time deposits not pay
able within thirty days; elsewhere, 15% of same; 2-5 in cash. Reserve companies in Boston, 1⁄2 in cash.
20% of "Matured obligations and money due and payable." 4 in
15% of demand deposits.
15% of demand deposits, 1-5 in cash.
15% of liabilities, less deposit with Territory. 2-5 in cash. Reserves are figured on aggregate deposits less trust funds, time
deposits not payable within thirty days, and deposits secured by New York State bonds.
In New York city, borough of Manhattan, 15%, all in cash.
North Carolina 15%, 2-5 in cash.
15%, 6% of demand and 4% of time deposits in cash.
15% of demand and 10% of time deposits, in cities of less than 50,000; elsewhere, 25% of demand and 10% of time deposits. 1-3 in cash.
Pennsylvania 15% of demand and 72% of time deposits, 1-3 in cash.
West Virginia 15% of demand deposits, 2-5 in cash.