Institutions chartered by the several States of the United States for the purpose of performing, as corporations, the general acts and assuming the general responsibilities imposed upon individuals under the law of trusts. The trust company in the United States exists in various forms, and combines with its trustee business numerous other lines of banking; as, for instance, the private savings bank business in certain States, Chiefly in
the West; mortgage investment in nearly all States; title guarantee and other insurance; and of recent years a general banking business similar in all respects to that of the ordinary deposit bank.

The growth and extension of trust companies in the United States has been one of the most noteworthy incidents in the country's recent financial history. The Comptroller of the Currency, in his annual report summarizing the various banking institutions in the United States, had returns in 1898 from 246 institutions of this class, which number had at the close of 1902 risen to 417. In 1902, according to the same report, the assets of the 417 companies aggregated $1,983,214,707. On January 1, 1899, there had been incorporated in New York State 49 trust companies, having aggregate resources of $579,205,442.

At the opening of 1903 there were 77 institutions in existence, with total assets of $1,039,956,625. On January 1, 1898, the deposits of the New York trust companies aggregated $383,328,724. At the opening of 1903 their total was $734,342,837. The loan account, which amounted at the opening of 1898 to $261,765,000, had risen at the opening of 1903 to $597,194,389. At the opening of 1898 investments by trust companies in stocks aggregated in New York State $113,525,797; at the opening of 1903 they had very nearly doubled, rising to $219,378,946.

The trust companies have occupied public interest and discussion chiefly because of the exceptional increase of deposits since 1896-97, which is a result partly of the general practice maintained by these companies of offering interest on deposit accounts--a practice very generally abandoned nowadays by banks in the larger cities. The trust companies in New York City offer interest on all deposits at a rate varying from 2 to 4 per cent., according to the agreement made as to the permanency of the deposit. In addition to the large amount of deposits thus attracted, the immense credit fund in the hands of the trust companies for loaning purposes has made possible the increase of their deposits through the making of such loans, at a far more rapid rate than heretofore.

Public discussion has converged on these operations, not only because of their magnitude, but because banking deposits maintained by the trust companies have not been guarded in the same way as have those of the banks. In general, there is no restriction in the State laws as to the amount of cash reserve which a trust company must keep against its deposits, the presumption of the law being that trustee business pure and simple was being carried on. The question whether this position was altogether safe from a banking standpoint has been debated with considerable energy, and various reforms or remedies have been suggested. In the making of such reforms, whether through private arrangement or through legislative act, two difficulties arise, due to differences either in the character or practices between the trust companies and the banks.

First, the trust companies, though keeping on hand a cash reserve amounting at times to barely 2 per cent. of their deposit funds, nevertheless maintain on deposit at demand in other institutions an amount bearing a much larger proportion to their own deposit liabilities. On such deposits with other institutions trust companies usually draw 2 per cent. interest. The magnitude of these deposits may be shown from the New York trust company returns of January 1, 1903.

As against their own deposit liabilities of $734,342,837, they then had on hand in cash only $10,493,236, but reported also as on deposit with other banks to their credit $128,166,652. The second difficulty in the way of arbitrary regulation of the trust company reserve fund lies in the fact that not all trust companies do a general banking business, some of them restricting their activities to trustee business of the old-fashioned order. In general, it has been recognized that deposit accounts held in a trustee business as originally contemplated need no more than a nominal cash reserve.

The trust companies of New York State may be taken as typical in a study of the problem. The important point to notice in these companies is that the law which created them is acknowledged not to have contemplated the doing of business on precisely the lines now followed by many of the institutions. Seventeen trust companies in New York State were chartered by special act of the Legislature between 1822 and 1887. In the latter year the general trust company law was passed, which, as subsequently amended, is now the basis of authorization for the business of the 60 subsequently incorporated companies. The purpose of the law, as clearly shown in these various enactments, was to create a class of institutions which in their powers, duties, and responsibilities should be able to act as substitute for the individual trustee.

The general trust company law of New York State as it now stands authorizes the companies to perform the following functions: (1) to act as the fiscal or transfer agent of any State, municipality, body politic, or corporation, etc. (2) to receive deposits of trust moneys, securities, and other personal property from any person or corporation, and to loan money on real or personal securities. (3) to lease, hold, purchase, and convey any and all real property necessary in the transaction of its business, or which the purposes of the corporation may require, or which it shall acquire in satisfaction or partial satisfaction of debts. (4) to act as trustee under any mortgage bond issued by any municipality, body, politic, or corporation. (5) to accept trusts from and execute trusts for married women, in respect to their separate property, and to be their agent in the management of such property. (6) to act under the order or appointment of any court of record as guardian, receiver, or trustee of the estate of minors. (7) To take, accept, and execute any and all such legal trusts, duties, and powers in regard to the holding, management, and disposition of any estate, real or personal, and the rents and profits thereof, or the sale thereof, as may be granted or confided to it by any court of record, or by any person, corporation, municipality, or other authority. (8) To take, accept, and execute any and all such trusts and powers of whatever nature or description as may be conferred upon or entrusted or committed to it by any person or persons, or any body politic, corporation, or other authority. (9) To purchase, invest in and sell stocks, bills of exchange, bonds and mortgages, and other securities. (10) to be appointed and to accept the appointment of executor or of trustee under the last will and testament, or administrator with or without the will annexed, of the estate of any deceased person, and to be appointed and to act as the committee of the estates of lunatics, idiots, persons of unsound mind, and habitual drunkards.

These functions make plain both the nature of the trust company's business as contemplated by the legislators and its difference from the banking business as conducted by an ordinary deposit bank. It will be observed that the act above quoted does not specifically in any place authorize the trust company to transact a general deposit banking business. But the statute does not deny such powers, and in section 8 it provides that a company incorporated under the act may accept "any and all such trusts and powers, of whatever nature or description, as may be conferred upon or entrusted or committed to it by any person or persons." This is a sufficiently sweeping proviso to cover the doing of banking business in any deposits entrusted to the company by individuals, and on that basis a great part of the trust company business as nowadays understood has been built up.

It is because of this growth of a business not contemplated in the original authorizing act that the most interesting recent controversy over the trust company business has grown up. In New York State, trust companies which report semi-annually to the State Banking Department showed in 1898 "deposits in trust" of $185,099,694; at the opening of 1903 their "deposits in trust" which still should have referred to deposits under the strict purpose of the original act, were given as $205,341,290. On the other hand, what are classed in the reports as 'general deposits,' referring presumably to the funds of depositors subject to all the rules which govern deposits of individuals in banks, amounted on , January 1, 1898, to $198,229,029, but at the opening of 1903 had risen to $529,001,547. 

It is probable that the classification of deposits as above is somewhat loose; nevertheless, the statement is sufficient to show the enormous growth of the purely banking side of the trust company business. The banking laws of the United States and of the various States provide without exception for the maintenance of a specified percentage of deposit funds in cash reserves. This percentage, in national banks, varies from 7 per cent. to 25 per cent. of the total deposit liabilities. As the above citation from the trust company act will show, no such restriction has been applied in the case of the trust companies.

The question whether the cash deposited with the banks was a legitimate reserve for all purposes has been the bone of contention in controversy on the subject of trust companies. The banks have contended that it is not and that the trust companies should be required to maintain in cash an adequate reserve. The trust companies have in general answered that the funds deposited by them with the banks, if they are properly secured by the banks' own reserve, should be a sufficient guarantee against any sudden demands by the trust companies' depositors. In the early part of 1902 this controversy became acute. At that time 27 trust companies in Greater New York used by arrangement the facilities of the New York Clearing-house, for the purpose of exchanging and redeeming checks paid into them.

Such checks were delivered by the trust company to a bank specified as its clearing-house agent, and by that agent were properly exchanged in the daily clearings. On April 29, 1902, the New York Clearing-house adopted the following resolution: "Every institution which hereafter may be granted permission to clear through a member of this association shall be required to keep in its vaults such cash reserve to its deposits as the clearing-house committee may determine. The percentage of such reserve, however, is not to exceed that required of banks members of the Clearing-house Association." 

The rule did not apply to any of the numerous trust companies at that time actually using the clearing-house facilities. A year later, on February 8, 1903, the following more drastic resolution was adopted by the clearing-house; "Every non-member institution (not a bank required by law to maintain a specified reserve) now or hereafter sending its exchanges through a member of the association shall on and after June 1, 1903, keep in its vaults a cash reserve equal to 5 per cent. of its deposits; and on and after February 1, 1904, such cash reserve shall be at least 7 1/2 per cent. of its deposits, and on and after June 1, 1904, such cash reserve shall be such percentage as shall from time to time be fixed by the clearing-house committee, but not less than 10 nor more than 15 per cent. of its deposits. The reserve hereby required shall be an average reserve as against the average deposits as shown upon its weekly statements."

A vigorous controversy arose as to whether the trust companies should submit to this regulation. It was pointed out that for many of them the clearing-house facilities were not indispensable, and that they could arrange individually for the redemption of checks paid into them. On the basis of this reasoning 10 trust companies, including several of the largest institutions of the kind in New York City, formally withdrew from the clearing-house. Those which remained, numbering 17, acceded to the clearing-house rule and began to build up a cash reserve in accordance with its requirements.