The trust companies of New York State may be taken as typical in a study of the problem. The important point to notice in these companies is that the law which created them is acknowl edged not to have contemplated the doing of business on precisely the lines now followed by many of the institutions. Seventeen trust com panies in New York State were chartered by special act of the Legislature between 1822 and 1887. In the latter year the general trust com pany law was passed, which, as subsequently amended, is now the basis of authorization for the business of the GO subsequently incorporated companies. The purpose of the law-, as clearly shown in these various enactments, was to create a class of institutions which in their powers, duties, and responsibilities should be able to act as substitute for the individual trustee. The general trust company law of New York State as it now stands authorizes the companies to perform the following functions: (1) To act as the fiscal or transfer agent of any State, municipality, body politic, or corporation. etc. (2) To receive deposits of trust moneys, securi ties, and other personal property from any per son o• corporation, and to loan money on real or personal securities. (3) To lease, hold, purchase, and convey any and all real property necessary in the transaction of its business, or which the purposes of the corporation may require, or which it shall acquire in satisfaction or partial satisfaction of debts. (4) To act as trustee un der any mortgage bond issued by any municipal ity, body politic, or corporation. (5) To accept trusts from and execute trusts for married women, in respect to their separate property, and to be their agent in the management of such property. (6) To act under the order or ap pointment of any court of record as guardian, receiver, or trustee of the estate of minors. (7) To take, accept, and execute any and all such legal trusts, duties, and powers in regard to the holding, management, and disposition of any estate, real or personal, and the rents and profits thereof, or the sale thereof, as may be granted or confided to it by any court of record, o• by any person, corporation, municipality, or other authority. (8) To take, accept, and execute any and all such trusts and powers of whatever na ture or description as may be conferred upon or intrusted o• committed to it by any person or persons, or any body politic, corporation, or other authority. (9) To purchase, invest in, and sell stocks, bills of exchange, bonds and mortgages, and other securities. (10) To be appointed and to accept the appointment of ex ecutor or of trustee under the last will and testa ment, or administralo• with or without the will annexed, of the estate of any deceased per son, and to be appointed and to act as the com mittee of the estates of lunatics, idiots, persons of unsound mind, and habitual drunkards.
These functions make plain both the nature of the trust company's business as contemplated by the legislators, and its difference from the banking business as conducted by an ordinary deposit bank. It will be observed that the act above quoted does not specifically in any place authorize the trust company to transact a gen eral deposit banking business. But the statute does not deny such powers, and in section 8 it provides that a company incorporated under the act may accept "any and all such trusts and powers, of whatever nature or description, as may be conferred upon o• intrusted or committed to it by any person or persons." This is a suf• ficiently sweeping proviso to cover the doing of banking business in any deposits intrusted to the company by individuals, and on that basis a great part of the trust company business as nowadays understood has been built up.
It is because of this growth of a business not contemplated in the original act that the most interesting recent controversy over the trust company business has grown up. In New Yo•k State, trust companies which) report semi-annually to the State Banking Department showed in 1898 'deposits in trust' of $185,099, 694: at the opening of 1903 their 'deposits in trust,' which still 5110111(1 have referred to de posits under the strict purpose of the original act, were given as $205,341,290. On the other
hand, what are classed in the reports as 'gen eral deposits,' referring presumably to the funds of depositors subject to all the rules which gov ern deposits of individuals in banks, amounted on .Tanuary 1, 1898, to $198,229,029, but at the opening, of 1903 had risen to $529.001,547. It is probable that the classification of deposits as ahove is somewhat loose; nevertheless, the state ment is sufficient to show the enormous growth of the purely banking side of the trust company business. The banking laws of the United States and of the various States provide without excep tion for the maintenance of a specified percent age of deposit funds in cash reserves. This percentage, in national banks, varies from 7 per cent. to 25 per cent. of the total deposit lia bilities. As the above citation from the trust company act will show, no such restriction has been applied in the case of the trust companies.
The question whether the cash deposited with the banks was a legitimate reserve for all purposes has been the bone of contention in controversy on the subject of trust companies. The banks have contended that it is not and that the trust com panies should be required to maintain in cash an adequate reserve. The trust companies have in general answered that the funds by them with the banks, if they are properly se cured by the banks' own reserve, should be a sufficient guarantee against any sudden demands by the trust companies' depositors. In the early part of 1902 this controversy became acute. At that time 27 trust companies in Greater New York used by arrangement the facilities of the New York Clearing-house, for the purpose of ex changing and redeeming checks paid into them. Such checks were delivered by the trust com pany to a bank specified as its clearing-house agent, and by that agent were properly exchanged in the daily On April 29, 1902, the New York Clearing-house adopted the following resolution: "Every institution which hereafter may be granted permission to clear through a member of this association shall be required to keep in its vaults such cash reserve to its de posits as the clearing-house committee may de termine. The percentage of such reserve, how ever, is not to exceed that required of banks members of the Clearing-house Association." The rule did not apply to any of the numerous trust companies at that time actually using the clearing-house facilities. A year later, on Feb ruary 8, 1903, the following more drastic reso lution was adopted by the clearing-house: "Every non-member institution (not a bank re quired by law to maintain a specified reserve) now or hereafter sending its exchanges through a member of the association shall on and after June 1, 1903, keep in its vaults a cash reserve equal to 5 per cent. of its deposits; and on and after February 1, 1904, such cash reserve shall be at least per cent. of its deposits, and on and after June 1, 1904. such cash reserve shall he such percentage as shall from time to time be fixed by the clearinghouse committee, but not less than 10 nor more than 15 per cent. of its deposits. The reserve hereby required shall be an average reserve as against the average de posits as shown upon its weekly statements." A vigorous controversy arose as to whether the trust companies should submit to this regu lation. It was pointed out that for many of them the clearing-house facilities were not in dispensable. and that they could arrange indi vidually for the redemption of cheeks paid in to them. On the basis of this reasoning 10 trust companies, including several of the largest in stitutions of the kind in New York City, formally withdrew from the clearing-house. Those which remained. numbering 17. acceded to the clearing house rule and began to build up a cash reserve in accordance with its requirements.