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TRUST COMPANY

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Originally appearing in Volume V27, Page 330 of the 1911 Encyclopedia Britannica.
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See also:

TRUST See also:COMPANY , the name given to a See also:form of fiduciary See also:corporation, originally adopted in the See also:United States under See also:state See also:laws to accomplish See also:financial See also:objects not specially provided for under the See also:national banking See also:system. The See also:function which gives a trust company its name is to execute See also:trusts for individuals, estates and corporations. In the United States, however, these functions have been extended to include many of those of commercial See also:banks receiving deposits payable on demand and subject to check. The relations between trust companies and their depositors are based, however, upon different principles from those between the See also:bank and its client (see BANKS AND BANKING). The larger trust companies prefer See also:deposit accounts which, even when subject to check, are not actively See also:drawn upon. The fact that they pay See also:interest on such deposits absolves them from the See also:obligation to extend See also:accommodation by way of loans, except upon See also:collateral See also:security. Hence out of the difference in their relations"with depositors grows a difference in the See also:character of their investments, which are usually in loans on stock See also:exchange securities and not on commercial See also:paper discounted. In New See also:York they are prohibited from directly discounting commercial paper, but not from buying it. The See also:rate of interest paid on demand deposits is usually 2% for small accounts, and 3% for large accounts; for See also:time deposits it is sometimes more. In the See also:administration of estates ,or private individuals, the trust company has taken the See also:place to a large extent of individual attorneys. The trust company has the See also:advantage of corporate responsibility, which involves continuous See also:life, and of proper offices, See also:fire-See also:proof See also:safes, and See also:special employees in each See also:department devoting their time and See also:attention exclusively to their special functions. Investments for estates are limited by See also:law, like savings bank investments, to certain classes of securities, and a trust company has little temptation to violate such laws.

It is customary, moreover, for investments of trust funds to be made by authority of the See also:

board of See also:directors, thus protecting the See also:estate against the uncertainties of individual See also:judgment. The trust company has found a special See also:field in See also:America as See also:agent of railway and See also:industrial corporations in the issue, See also:transfer and exchange of securities. For these purposes it has an organized system, tested by experience, more perfect in its operation and less expensive than each corporation could organize for itself separately. As trustee for the bondholders under a railway See also:mortgage, for instance, it becomes the See also:duty of the trust company, in See also:case of See also:default in See also:payment of interest on the bonds, to take steps to foreclose the mortgage and protect the bondholders. Trust companies have sometimes been named as receivers of failed banks. The big industrial combinations in America have contributed to the business of the trust companies as registrars or transfer agents for capita! stock, agents for the issue of bonds and payment of interest thereon, agents for underwriting and distributing new securities, and depositories of securities and See also:cash under plans of reorganization or while held in escrow. In the case of the reorganization of the See also:tobacco companies, in the autumn of 1904, securities aggregating about $600,000,000 passed through the hands of the trust company charged with the See also:work; and while this was the largest single operation of its See also:kind, it is typical of many similar operations resulting from the activity in the creation of new companies in America which bring business to trust companies. The attractions offered by the trust company to the non-commercial depositor by the payment of interest on his deposit built up the deposit balances of trust companies rapidly after 1896. Their competition in this respect with national banks soon led to an effort to compel trust companies to keep cash reserves against their deposits. This demand was resisted for a while, but in 1903 a See also:rule was made by the New York Clearing See also:House requiring trust companies to keep certain reserves. The alternative was to withdraw from the Clearing House, and this all but a few did. The New York legislature, however, at the session of 1906, passed an See also:act requiring trust companies in New York See also:city to establish within fixed See also:dates reserves of 15 % of their deposits, of which only 5% was required to be currency, 5 % might be on deposit in another banking institution, and 5 % might be kept in certain classes of bonds.

The experience of the panic of 1907 See also:

developed several weaknesses in the position of the trust companies, and in New York led a special See also:commission appointed by See also:Governor See also:Hughes to recommend much stronger reserves. The fact that the trust companies relied upon the national banks to meet the heavy demands upon them for currency doubled the See also:strain imposed on the national banks of New York city, and the See also:isolation of the trust companies through their withdrawal from the Clearing House in 1903 made it difficult to bring about co-operation in support of those which were subjected to severe runs. Between the 22nd of See also:August and the 19th of See also:December 1907 the deposits of the trust companies of New York declined by the sum of more than $275,000,000 while deposits in national banks increased about $50,000,000. The number, resources and activities of trust companies have shown a rapid development. In New York the See also:general law under which companies can be formed without a special act dates only from 1887, but several companies ante-date this law. The following figures i from reports made to the See also:comptroller of the currency speak for themselves: The table, it may be observed, represents only the number of companies See also:reporting and not the number actually in existence. Kirkbride and Sterrett, for example, give the number of trust companies in the United States on the 1st of See also:January 1905 as 1427, or more than twice the number given here for 1905. On this point the comptroller of the See also:Treasury in 1905 said: " In See also:order to obtain this See also:information [from institutions other than national banks] the comptroller is necessarily dependent upon the See also:courtesy of See also:officers of different states, and upon individual banks in states the laws of which states do not provide for compilation of data of this character ... Each See also:year one or more states formerly without adequate See also:provision for obtaining and compiling reports of banks incorporated under their laws, have through legislative enactment, placed such banks under the supervision of an See also:official whose duty it is to receive and tabulate the reports so required, which information is placed at the disposal of the comptroller. Every year this See also:office is thereby enabled to publish official, and hence more reliable See also:statistics...." Trust Companies of the United States. 3oth See also:June. Number.

See also:

Capital. Individual Deposits. $ $ 1891 I 71 79,292,889 355,330,080 1897 251 106,968,253 566,922,205 1900 290 126,930,845 1,028,232,407 1901 334 137,361,704 1,271,081,174 1902 417 179,732,581 1,525,887,493 1903 531 232,807,735 1,589,398,796 1904 585 237,745,488 1,600,322,325 1905 683 243,133,622 1,980,856,737 1906 742 268,384,337 2,008,937,790 1907 794 276,146,081 2,061,623,035 Approximately See also:half of the deposits in United States trust companies are in the state of New York, the number of such companies in New York about the 30th of June 1907, being 88, with a capital of $67,850,000, and deposits of $1,020,678,220. The next highest states in amount of deposits were See also:Pennsylvania, with 328 companies, with capital of $103,953,067 and deposits of $38I,397,305; and See also:Massachusetts, with 46 companies, with capital of $16,677,000 and deposits of $179,278,436. See Kirkbride and Sterrett, The See also:Modern Trust Company (New York, 1905). (C. A.

End of Article: TRUST COMPANY

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