As the corporate form of commercial organization became a domi nating factor of American business toward the close of the cen tury, there were created many opportunities for the trust company to enter new fields and to undertake duties hitherto unattempted. Also, it was not until the latter half of the 19th century that the large private capital aggregations had been amassed. The com bination of this accumulation of large personal fortunes and the increasing tendency toward the corporation type of business organization provided the extensive field in which the trust com panies were privileged to operate.
Since the Civil War, which caused the enactment of the Na tional Banking Act in 1863, there have existed side by side two systems of banking in the United States, namely national and State. The expansion of the trust company in the '8os and '9os, however, soon attracted considerable attention. It was not long before the banking community of the country realized that this new form of financial organization was destined to become one of the important systems in the country's banking machinery.
Under the general trust company law of New York State en acted in 1887, trust companies were empowered to accept de posits and pay interest upon balances. This feature of trust com pany activity was the root of the national bank-trust company controversy that subsequently developed. Shortly after 1900, however, trust companies began to maintain a cash reserve against deposits. During 1903, the New York clearing house adopted a resolution in regard to the reserve requirements of trust companies. Starting at 5% of their deposits, it was later advanced to 15%. Trust companies in New York city later with drew from membership in the New York clearing house, but sub sequent legislation fixed the reserve against deposits at 15%, which was divided into three classifications, namely, 5% in cash, 5% with approved banking institutions, and 5% in certain types of bonds, preferably government or municipal issues. With the enactment of the Federal Reserve law, important changes were made in the financial machinery of the country; seasonal and periodic demands for funds in different parts of the country could not easily be met. Under the Federal Reserve System, with the country divided into 12 sections, the flow of credit from one sec tion to the other was greatly stimulated, and the primary cause of financial panics practically eliminated.
During the next 27 years, the number of companies reporting to the controller of currency had increased to 2,731, and their aggregate capital during this interval rose even more rapidly. The report of the condition of these institutions on June 30, 1927, stated that total capital amounted to $1,161,305,900, and that deposits were $16,824,822,700. The developments in the trust company field during the last ten years are still further empha sized by the fact that in 1917, 2,009 trust companies had total resources less than half the amount possessed by the companies in existence at the close of 1927. A growth of 127% in trust com pany resources occurred in this period, in comparison with the advance of only about 25% in the number in operation.
A statistical review of trust company growth is presented in the accompanying table: Regional Distribution.—Although the development of trust companis in the eastern section of the country has been greater than in the central or western sections, this is almost en tirely due to the fact that the States bordering on or adja cent to the Atlantic ocean were the first to be settled, and hence the first in which wealth was created. With the expan sion of business and the increase in population in the central, western and southern sections of the country, the introduction of the trust company idea has gone along at a rapid pace. With New York as the present financial centre of the country, however, the greater aggregate in trust companies' resources is destined to be in and near this section. The inauguration of the Federal Reserve System did not in any way reflect upon or change the method of State supervision of financial institutions within the borders of the States, but rather co-ordinated all financial resources to meet unusual or excessive demands when and where needed.
A constantly growing realization of the superiority of the fiduciary service rendered by a corporate trustee over an indi vidual, with its fixed responsibility, legal continuity and trained staff, is stimulating the growth of these institutions rapidly. Ob serving the growth of this form of banking service the national banks secured an amendment to the National Banking Act in 1918 by which they were permitted to perform fiduciary services and many of the larger national banks now maintain trust depart ments organized for such purposes. (F. H. Si.)