The development of a trust department is a slow process. Ordinarily it takes five years at least to put it on a fixed and pay ing basis. No bank should establish one unless it is determined to give it a fair trial and to finance it for a number of years. It is practically impossible for a corporate executor to discontinue the trust relation after it has once been assumed. In states where the law requires a deposit by the bank which would act in a trust capacity without bond, the sum so deposited can rarely be removed. The ramifications of the trust business are such that a termination of all of it is impracticable. A good way to start is for the directors and officers of the bank itself to lodge their wills Itith the department. This not only gives initial business, but also gives the public confidence in the bank's new department. Banks in cities and county seats will be more likely to succeed in the trust business than those in smaller places.
In determining the advisability of establishing a trust depart ment, the arguments that fiduciary business should not be under taken, because it involves the bank in grave responsibilities which it is inadequately equipped to perform, because it means a net cost for a number of years at least, because the possible volume of business is too small to make it worth while, and because it will result in the hostility of the local lawyers who regard the new activity as an intrusion into their own particular province, are balanced against the arguments that trust business once built up will provide steady and dependable earnings, that through this service the bank will be able to retain customers who other wise will be attracted to the institution handling their fiduciary business, and that the new and intimate relationships with customers will afford an avenue for new business for the other departments of the bank.
In accepting trust business the department should be selective. Business for which the compensation is inadequate should not be accepted unless it will surely lead to other profit able business. Business in which bitterness and family enmities are known to exist or may be expected may cost the bank more in loss of patronage and good-will than it brings dollars. If the bank is a joint trustee with an individual or individuals, it, as a corporate trustee, should ask more compensation than the individual trustee, for its responsibilities and work will be greater.
A national bank is qualified to act as trustee. It is a corpor
ate fiduciary and preferable to an individual fiduciary because it offers greater financial responsibility, continued or perpetual existence, financial judgment, accumulated experience, expert officers and employees, and impartial execution of its business. Its charter is almost automatically renewed under the law. Its settlers of trust and its creditors are protected by the double liability of its stockholders.
As yet no scale of charges for trust work has been adopted by the national banks operating trust departments. It is desirable that some uniform or standard method of charging be adopted, and that the cutting of rates for competitive advantage be mini mized. It may be well for the departments to charge according to the "Schedule of Trust Company Charges," compiled by the Committee on Standardization of Forms and Charges, Trust Company Section, American Bankers' Association, and adopted by that section on September 29, 1919.
Up to June 3o, 192o, the Federal Reserve Board had issued 1,227 permits to national banks to perform trust company func tions. Since there are less than 2,30o trust companies in the United States, this represents an increase of more than 50 per cent in the institutions that handle fiduciary business. Moreover some states also have authorized their state banks to undertake this new line of activity. The distribution of the national banks which have permission to execute trusts is indicated by the following table: The Savings Department There is nothing in the National Bank Act or the Federal Reserve Act authorizing the operation of a savings department, and as the capital, deposits, and all other funds of a national bank may be loaned or otherwise invested only in conformity with the provisions of law, it follows that the sole business of a savings bank which can be legally transacted by a national bank is the paying of interest on deposits.
The counsel of the Federal Reserve Board has rendered an opinion that the federal law relating to the establishment and operation of national banks is superior to and controlling over a state law which might otherwise apply to or govern the operation of national banks. Congress having conferred on national banks the power to pay interest on time deposits, it is evident that the right to advertise and solicit such savings accounts is a necessary incident to the exercise of that power, and that no state law can interfere with its exercise.