The company acts as representative for living or dead in practically every legal relation in which an individual can act. It must not only keep intact the estate of which it has charge, but must safeguard the interest of every beneficiary.

The special functions are life insurance, title insurance, and fidelity insurance. Life insurance was formerly a part of a trust company's business, but has now been delegated in large degree to special life insurance companies. Title insurance is often found to be one of the functions. The company insures the purchaser of property because of illegal titles and guarantees the sale to be legal. Fidelity insurance, which insures an individual or corporation against loss by reason of dishonesty and non-performance of obligations or contracts, is gradually passing into the hands of special companies.

113. THE BANKING FUNCTIONS OF TRUST COMPANIES1 By F. B. KIRKBRIDE AND J. E. STERRETT

The banking functions of trust companies may include any or all of the following:

The receipt of money deposits payable on demand and subject to check, or payable at a fixed date, or according to special agreement. Interest is usually allowed on all deposits above a fixed minimum amount or on the total sum.

Money advances secured by the hypothecation of stocks, bonds, life insurance policies, bonds and mortgages, or other personal property.

Real estate loans, secured by bond and mortgage. It is customary to loan not over two-thirds of the value of improved property; when the property is unimproved, not more than half.

Discounting paper is engaged in principally by companies transacting a commercial banking business. The purchase of unsecured paper is permitted in some states where discounting is not allowed. The purchase and sale of securities.

Trust companies sometimes guarantee issues of bonds, or at least set their stamp of approval upon them.

The issue or guarantee of letters of credit and the transaction of a foreign exchange business.

1 Adapted from The Modern Trust Company, p. 6. (The Macmillan Co., 1913.)

The care of savings deposits. For this purpose a separate department is usually maintained.

114. CAUSES OF THE GROWTH OF TRUST COMPANIES1 BY CLAY HERRICK

Regarding the causes of the growth of trust companies, the easiest thing to say is also probably the truest-that they are found in the tendencies of our age and nation. The trust company marks, not a revolution, but an evolution in our methods of handling financial matters, and we cannot understand its development without taking into account the great changes which our civilization is undergoing. There is, to begin with, the accumulation of individual wealth—the increase in the number of persons and families having large interests. to care for. A still more important influence has been the tremendous increase in corporate wealth, both in number of corporations and in the amounts under their control. Here are phenomena that are peculiar to the United States and peculiar to this age. Nothing like the huge corporations formed in recent years in the United States has ever been known before since history began. To care for these institutions some special agency was needed. The trust company proved equal to the emergency. Says one writer: "Without their [the trust companies'] agency some of the transactions in modern corporate business would be both cumbersome and difficult. For the success of schemes of reorganization of railroad interests and the financing of vast industrial consolidations their intervention has grown to be at least an invaluable convenience, if not altogether a necessity."

Coincident with this tendency to great consolidations, the growing recognition among all classes of people of the value of associated effort has had a marked influence in favor of trust companies. Here again the trust company finds itself in harmony with the times. It is an intermediary between great enterprises and the group of individuals who constitute its customers. It takes the amounts, large or small, contributed by the latter, in trust; and the result is a large amount which it can invest in any corporate undertaking to the mutual advantage of all concerned. Surplus funds, useless in small amounts, are

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Adapted from Trust Companies, Their Organization, Growth and Management, pp. 31-32. (Bankers' Publishing Co., 1909.)

gathered together and made to do service in enterprises that benefit the whole people.

115. THE REGULATION OF TRUST COMPANIES'

BY JOHN FRANKLIN EBERSOLE

The trust companies present some different features from the state banks. While it is true that the laws concerning state banks and trust companies are tending to become assimilated, certain important differences remain.

The trust companies are distinctly authorized to accept trusts and to do a safe-deposit business in addition to general banking. The majority of the states which provide for a specified capital require a minimum of $100,000 or over. There is a tendency in recent legislation to lower this amount. "In every state except one the smallest permissible capital is as large for trust companies as for state banks, if not larger; in six states it is the same; in all the others it is larger."

Subscribed but unpaid capitals are permitted in fourteen states, but the majority require full payment. Of the latter over half require full payment as a condition for beginning business. The payment is required by all but nineteen states to be "in cash" or "lawful money." The accumulation of a surplus is not required in so many states for trust companies as for banks.

With respect to loans, trust companies are less restricted than state banks. Nine states which limit state banks do not limit trust companies.

The reserve requirements for trust companies are much less than for state banks. Six states and territories require no reserve whatever. Two states require reserves of trust companies but not of banks. In the remaining states, trust companies are favored by being allowed to count bonds as a part of the reserve, or to hold lower reserves against time deposits. Recent legislation shows a tendency to increase these reserves or to diminish the proportion of bonds held in them. This leniency has probably been due to the different character of the trust company deposits. They are largely inactive and contain but a small percentage of bank deposits which are subject to sudden or large withdrawals.

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Adapted from "The Relation of State to National Banks," Proceedings of the American Academy of Political and Social Science, I (1911), 291-92.

116. TRUST COMPANY FAILURES1

BY CLAY HERRICK

Statistics regarding failures and suspensions of trust companies are not obtainable prior to the year 1893. From 1893 to 1907 the percentage of failures (or the ratio of the number of companies failing to the number of companies in business) was about as follows for the different types of banking institutions:

National banks...

State banks.

Savings banks.

Loan and trust companies.

of 1 per cent

10% of 1 per cent

10% of 1 per cent

foo of 1 per cent

From these figures it appears that the proportionate number of trust company suspensions was less than that of any class of financial institutions except the National banks.

Regarding the losses involved in the failures, the showing of the trust companies is, on the face of the figures, not so good, the losses assigned to them exceeding those of the other institutions, except the private banks. The figures represent, however, not the ultimate losses, but the best estimates of the probable results obtainable at the time. An examination of the figures for the year 1907, which account for 62 per centum of the entire estimated liabilities for the fifteen years, shows that they give a greatly exaggerated idea of the actual losses involved. Of the 17 trust companies reported suspended in 1907, at this date (November, 1908) about one-half have reopened for business, while several others are being liquidated without loss to depositors.

Especial interest attaches to the record of trust companies during and since the panic of 1907, because it was the first severe strain that has been undergone by these institutions since their great development began. On the whole the record must be pronounced very satisfactory. Although subjected to a strain that was unprecedented, their record compares favorably with that of other classes of financial institutions. The failures which occurred were in no sense ascribable to any inherent weakness in the trust company as an institution, but are accounted for in some cases by the dishonesty of officials and by undue laxity of the state laws under which they operated, and in others by pressure of circumstances which could not be overcome

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Adapted from Trust Companies, Their Organization, Growth and Management, pp. 23-24. (Bankers' Publishing Co., 1909.)

by any kind of banking institution. The same causes brought about. the downfall of other financial institutions, including National banks and State banks in states having the best laws for their regulation and control. The panic of 1907 did, however, emphasize the necessity of careful and intelligent state regulation and control of trust companies as well as of the other banking institutions.

D. The Regulation of Note Issues

(1) GENERAL PRINCIPLES

117. METHODS OF BANK NOTE REGULATION'

BY FRED M. TAYLOR

The chief problems offered to the student by the bank note circulation are these three: (1) How shall this kind of money be kept at par with standard money? (2) How shall the holders of such money be secured against loss should the issuing bank default on payment? (3) How shall this money be given that elasticity which will enable it to play well its part as that constituent in the system which is depended on to adjust the stock of money to the need for money? Parity, ultimate security, and elasticity, these are the three principal characteristics which wise regulation seeks to secure for the note circulation.

I. THE PARITY OF BANK NOTES

In general all methods of insuring parity may be described as devices whereby a guarantee is given to the note-holder that, in case he cannot use the bank note in the ordinary course of trade he can easily make some other disposition of it which will not involve loss. Under that condition everyone is willing to become a note-holder, and so is willing to accept the note at par.

The principal devices coming under this description are two: (1) making the note a valid tender in some important relation, and (2) providing for its easy, instant, and constant convertibility. It is doubtful whether the former could ever, by itself, maintain parity. Probably, however, it contributes greatly to the result when the conditions for securing convertibility are inadequate, as is commonly the case.

But while it is a valid tender in some important relation contributing to maintaining the parity of notes, the only sure method of Adapted from Some Chapters on Money, pp. 276-94. (Copyright by the author, 1906.)