Trust Companies—Legal Requirements As stated in Chapter XII, trust companies perform numerous functions. Their powers vary with the state laws, and to the general power of administering trusts incidental or even unrelated powers have been added. The trust companies are becoming more and more standardized as to lines and operations. There is a tendency among them to drop title and fidelity insurance business and to develop their commercial banking activities, so that the businesses of the trust companies and the commercial banks are approximating each other. Some states no longer dis tinguish between the institutions, but rather regulate their busi ness as divided into three classes—commercial banking, savings banking, and trust operations.
The legal requirements as to capitalization of trust companies follow very closely those for banks. The minimum required capital for trust companies was originally higher than that for banks, but now tends to equal it. The provisions limiting the amount of any single liability generally apply to both banks and trust companies. The same is true as to reserve requirements; only a few states require reserves for banks but exempt] trust companies. Where differences are made they are usually not substantial. As contrasted with banks, trust companies may more often count securities as reserve and may keep different amounts against time and demand deposits. The panic of 1907 led to legislation in certain states raising the amount of reserves required for trust companies.
Growth of Trust Companies The early companies, of which the first was founded in 1822, were also interested in the insurance business. In 1853 the first company was chartered to do exclusively trust business. Im mediately after the Civil War the real trust company movement began, and when the Comptroller of the Currency began in 1875 to make his annual reports, 35 companies handed in statements to him. The list was incomplete, for the statements were volun tary and many companies did not make them. The rate of growth was rapid, between 1890 and 1900 almost doubling, and between 190o and 19r0 almost trebling. By 1909 the individual deposits of the trust companies, as well as their total resources, exceeded those of the state banks. The competition of the trust companies with the state and national banks was most intense at the time of their rapid expansion, between 1900 and 1915. The comparative growth of the various kinds of banks is shown in the table on page 433.
Causes of Recent Growth The trust companies owe their recent rapid growth to several factors. Probably the greatest is the tremendous increase in private and corporate wealth in the last generation. The need for some institutions to care for these large private estates and assist corporate financing promoted the trust company. The trust company has been highly useful in assembling funds for corporate investment, and, in conjunction with investment houses, in directing our industrial development. Its wide range of powers has also attracted customers, for it is able to serve practically every financial need of the private person or corpora tion; the customer is thus relieved from dealing with different parties and dividing his account. The trust companies have found it possible to pay better rates of interest on deposit balances than have the commercial banks, and this has been a powerful magnet for accounts. As they have been subject to less state legislation, regulation, and taxation, they have had fewer expenses and greater freedom in profit-making.
Another contributory cause of the rapid growth of trust com panies was their freedom at one time from regulation as to the minimum reserve kept. They carried practically their whole reserve on deposit with other banks. The accompanying table' shows that the reserve ranged from 15 to 27 per cent, but that the cash actually kept on hand by the trust companies ran as low as 2 per cent against total deposits, at the time of their most rapid development. After the panic of 1907 the ratio of till money to deposits was raised, both by law and voluntarily from proved business expediency.
Supervision and Regulation The examination and regulation of trust companies developed later than the examination and regulation of banks. This was due to the late standardization of trust companies and was brought on by the invasion of the field of commercial banking. To the degree that trust companies devote themselves to com mercial banking they should be subject to the same restrictions and regulations as the competing commercial banks. The inter dependence of all financial institutions upon each other, particu larly in times of panic, and the danger arising from reckless competition between trust companies and banks, warrant the state legislatures in providing for as severe supervision over the one kind of institution as over the other. The supervision of the trust companies devolves upon the superintendent of banks.