THE NATURE AND FUNCTIONS OF TRUST COMPANIES
[91]The trust company supplements the bank. Through a long process of evolution the bank has developed as a means of facilitating the exchange of commodities. The trust company is a still further step in the same process, and, in a highly organized society, it meets needs which the bank is not able to supply.
In a new community the general store forms the centre of the business life of the place. With growth and increasing trade, the private banker sees room for the profitable employment of his funds. The state or national bank meets the needs of further growth. Success and the accumulation of wealth pave the way for the trust company. The bank is organized primarily to serve the needs of active commercial life; the trust company handles funds in less active circulation.
It is customary for the courts to designate or approve certain trust companies as depositories for funds paid into court, and the effect of such designation or approval would be to relieve executors, trustees, or others acting in a fiduciary capacity and depositing with these companies from liability for loss through their failure. A person charged with due care in the selection of a depository could not be held to have been wanting in such care in choosing as a depository a trust company which the court has itself approved.
The powers of trust companies vary in different states, and when they are created by special legislation, local companies are found with different charter privileges. The capital and surplus of these institutions are liable for their acts in fiduciary capacities, and in some states they are required to deposit with one of the state departments a fund as a special guarantee. The liability assumed is generally accepted by the courts in lieu of the bonds which individuals acting in similar capacities are required to give.
The development of trust companies in the United States has been remarkably rapid. Since 1882, when the first legal authority was given for the exercise by corporations of fiduciary powers, they have steadily grown in number until there are now more than fifteen hundred, distributed as follows:
| Alabama | 30 |
| Arizona | 9 |
| Arkansas | 38 |
| California | 24 |
| Colorado | 16 |
| Connecticut | 31 |
| Delaware | 12 |
| District of Columbia | 5 |
| Florida | 9 |
| Georgia | 25 |
| Idaho | 10 |
| Illinois | 75 |
| Indiana | 108 |
| Iowa | 29 |
| Kansas | 4 |
| Kentucky | 42 |
| Louisiana | 22 |
| Maine | 39 |
| Maryland | 21 |
| Massachusetts | 56 |
| Michigan | 6 |
| Minnesota | 4 |
| Mississippi | 19 |
| Missouri | 49 |
| Montana | 7 |
| Nebraska | 13 |
| Nevada | 1 |
| New Hampshire | 4 |
| New Jersey | 86 |
| New Mexico | 10 |
| New York | 78 |
| North Carolina | 38 |
| North Dakota | 5 |
| Ohio | 60 |
| Oklahoma | 10 |
| Oregon | 20 |
| Pennsylvania | 260 |
| Rhode Island | 11 |
| South Carolina | 17 |
| South Dakota | 12 |
| Tennessee | 73 |
| Texas | 52 |
| Utah | 9 |
| Vermont | 26 |
| Virginia | 19 |
| Washington | 20 |
| West Virginia | 22 |
| Wisconsin | 9 |
| Wyoming | 5 |
| Hawaii | 5 |
| —— | |
| Total | 1555 |
Their business in all departments has shown a steady increase, and the trust companies of the United States to-day carry deposits amounting to over $3,858,300,000. Net deposits in the 7397 national banks aggregate $5,891,670,000.
In some states commercial banking and trust powers are exercised by the same companies. In such cases, separate departments are maintained for the various classes of business. Another method is for the same individuals to organize a national bank and a trust company, the former under national and the latter under state laws.
The securities company or trust company organized under state laws and controlled by a national bank with the stock interest in the former distributed among the owners of the stock of the bank and evidenced by indorsement on its certificates is still another expedient which has been resorted to in order to enable a closely affiliated and controlled organization to exercise legitimate functions which are, however, outside the province of a national bank.
The earning power of trust companies has equalled and even exceeded that of the banks, and the stock of those companies which are well established and doing a flourishing business sells at such a premium that investment in it at its market value gives a very low return.
Trust company failures have been few and far between, and where they have occurred they can be traced to a disregard of sound banking principles and to the assumption of unwarranted risks. Even in the case of companies which have failed there is no record of any impairment of trust funds, whatever loss there was having been borne by the stockholders and, to a less degree, by the depositors. This fact, the result of the absolute separation of trust assets from assets belonging to the company, is the strongest argument for the employment of trust companies in fiduciary capacities, and explains their rapid growth in popular favor.
The literature put out by these institutions invariably recites the advantages to be gained by dealing with them instead of with individuals. The following is a good example of such reasoning: