Trust Companies





Within a comparatively short period of time the trust company has

developed into an institution of prime importance in the United

States. In the beginning of its history it was, as its name implies,

simply an institution for the administration of trusts of various

kinds, such as the execution of wills, the guardianship of minors and

other dependent persons, the administration of the estates of persons

either unable or unwilling to administer them for themselves, and

trusteeship under corporate mortgages, especially those of railroads.

In the latter capacity they became mortgagees in trust for

bondholders, registering the bonds, collecting the interest as it

became due, paying the bonds at maturity, and in case of default

taking the legal steps which were necessary for the protection of the

bondholders.



The execution of these trusts involved in most cases the custody and

investment of funds, so that investment banking became a part of their

business almost from the beginning, and, in time, in states in which

the laws passed for their regulation did not prevent, they added

commercial banking to their other functions. In some cases they have

also become promoters of enterprises, taking the initiative in the

organization of corporations for various industrial and commercial

purposes. In New York City, and in individual cases in some other

large cities, the commercial end of the business has become the

dominant one; in the former case on account of the ability of these

companies, unrestricted by certain laws applying to state and national

banks, to offer to commercial customers better terms than their

competitors. In most states, however, especially in the large cities

in which they chiefly flourish, trust companies have become primarily

investment banking institutions, their other functions being carried

on as side lines and assuming, of course, in some cases greater

importance than in others.



Since they are still in the early stages of their development, the

status of trust companies in the banking system of the United States

is not yet definitely determined. Legislation concerning them varies

considerably in different states, as do also their relations with

other banking institutions. The competitive character of these

relations has resulted in some cases in legislation which has aimed to

differentiate and define the various functions which all these

institutions perform, and to prescribe the conditions under which each

one or each group must be performed, regardless of the way in which

they are combined, and in others, in their practical consolidation

with national or state banks, or both, through community of stock

ownership, interlocking directorates, etc.



From the point of view of the convenience of the public there are

advantages in the combination of all the banking functions in a single

institution, and the success of trust companies to some extent has

been due to this cause, but they have also profited from the unequal

competition which exemption from certain limitations imposed on state

and national banks has enabled them to enjoy. The removal of the

conditions which result in this unequal competition, a process already

in progress and likely to continue to completion, will reveal the

strength of the advantages of combination versus specialization of

functions. Previous to such a revelation it will be impossible to

determine whether or not the trust company form of organization is

destined to become the dominant one.





The Weaknesses Of Our Banking System Prior To The Establishment Of The Federal Reserve System A Plan For A Compensated Dollar facebooktwittergoogle_plusredditpinterestlinkedinmail

Feedback