THE TRUST COMPANY AS A FACTOR IN THE

FINANCES OF THE NATION

ADDRESS DELIVERED BY FESTUS J. WADE, PRESIDENT OF THE MERCANTILE TRUST COMPANY OF ST. LOUIS, BEFORE THE FIRST CONVENTION OF THE MASSACHUSETTS BANKERS' AND TRUST COMPANY ASSOCIATION, AT BOSTON, JUNE 21, 1905.

THE trust company is not only an established American institution, but one which, if its growth continues in the next decade as it has in the past, with its combined force will shortly rival in point of actual resources that of the great national banking system of this government. Doubtless such a statement will greatly surprise many who have given little consideration to the remarkable development of trust companies throughout the United States in the past ten years. The trust companies, being state institutions, have no federal department to which they are obliged to make annual reports, and therefore statistics as to the number in existence, their capital, surplus, undivided profits, deposits, and total resources, are not as accurately collected as in the national banking system. The following quotation, however, from the report of the Secretary of the Treasury to Congress last December shows that the growth of the trust companies during the past few years has greatly exceeded in percentage the increase of national banks of the United States. The Secretary states:

Within the last few years trust companies have made a relatively much larger growth in all the large cities than national banks. There were twentyseven trust companies and forty-nine national banks in New York City ten years ago. The same city now has forty-seven trust companies and only forty-one national banks. Ten years ago the aggregate capitalization of the New York City trust companies was $26,400,000, and of national banks $50,700,000. Now the trust companies are capitalized at $54,900,000 and the national banks at $110,300,000, showing about the same relative increase. But the difference in the growth of deposits is marked. Trust companies in New York City held less than $260,000,000 ten years ago, and they now hold more than $875,000,000, while deposits in national banks have increased from more than $550,000,000 to a fraction less than $1,100,000,000. Thus, trust-company deposits show an aggregate growth of $65,000,000 more than national-bank deposits, and a growth of 240 per cent. as against 100 per cent. in national banks.

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In Chicago the number of trust companies has increased in ten years from eight to twelve, while the number of national banks has decreased from twenty-one to twelve. The capitalization of trust companies in Chicago in the same period has increased from $4,000,000 to $20,000,000, or 400 per cent. as against an increase of 25 per cent. in the capitalization of national banks. Deposits in these trust companies have increased from $15,000,000 to $230,000,000 in ten years, and in national banks from $130,000,000 to $280,000,000, or an aggregate increase of $215,000,000 in trust companies as against $150,000,000 in national banks, and an increase of 1,400 per cent. in trust companies as against 115 per cent. in national banks.

Other large cities exhibit similar conditions. Many trust companies hold commercial accounts and are regularly engaged in discounting paper, and they hold in the aggregate more than $2,000,000,000 in deposits.

It should be borne in mind that, although the report of Secretary Shaw to Congress was made in December, 1904, the statistics above quoted are for the fiscal year ending June 30, 1904. In no year in the past decade has the growth been more marvelous in the strength and development of the trust companies than during the past twelve months, and the most accurate data obtainable at this time will show that there are 1,438 trust companies in existence, 278 of which were organized since June 30, 1904. In addition to the above, at least 400 companies employ the title of "trust company" which are not properly institutions of this character.

Few realize the financial development of the Middle West, and especially its financial center, the city of St. Louis. The aggregate capitalization of the banks and trust companies of St. Louis on June I, 1905, was more than the aggregate capital of the national banks and trust companies of New York City ten years ago. It equals the capitalization of all the banks and trust companies of Chicago, and is practically equal to that of Boston.

According to the latest statistics, the banking power of the world is $33,608,000,000, of which $13,826,000,000 is represented by United States banks. The resources of the trust companies of the United States aggregate more than $3,250,000,000, which is over 23 per cent. of the banking power of the United States, and practically 10 per cent. of the banking power of the world. Secretary Shaw's suggestion in his report to Congress is very timely, when he points out the importance of giving trust companies the privilege of incorporating under federal law. If such a law should be enacted, a requirement should be placed upon the trust companies

in the matter of reserves. The stronger their reserve, the greater their strength.

The ratio of increase of the banking power of the world in the last fourteen years is 110 per cent. The ratio of increase of the banking power of the United States in the past fourteen years is 168 per cent. The ratio of increase in individual deposits of the national banks in the past twelve years is 90 per cent. The ratio of increase in individual deposits of the trust companies of the United States in the last twelve years is 390 per cent., and the individual deposits of the trust companies on June 1, 1905, were within a few million dollars of the individual deposits of the national banks of the United States in 1892.

When one stops to consider that the trust companies of the United States in their combined resources represent more than 23 per cent. of the banking resources of the United States, and practically 10 per cent. of the banking resources of the world, the importance of the trust company to this government is forcefully impressed upon one's mind. It is within the past decade that the British consol, primarily on account of the war in South Africa, dropped not only below par, but as low as eighty-six cents on the dollar. Within the past six months Japan and Russia were obliged to sell their securities on a higher basis than 6 per cent. interest per annum. It may be it is certainly within the realm of possibilities that the financial requirements of this government as a nation, through war with some powerful foreign government, may tax the resources, not only of the government itself, but of all its financial institutions to the fullest extent. Great Britain, France, Germany, Russia, Japan, China, and the United States have all gone through such periods within the recollection of everyone present. Should such a misfortune befall us in the next ten, twenty, thirty, or forty years, will not the government need the assistance of what is to-day over 23 per cent. of the banking power of this country, and what is destined to be one of its strongest financial factors? The interest-bearing debt of the United States government is less than $900,000,000. Its securities are rated the highest of any nation in the world; the government does not need the assistance of the trust companies at this time. Yet it is only a few decades ago when the debt exceeded $2,700,000,000, and the securi

ties of the government sold at less than fifty cents on the dollar. The interest-bearing debt of New York City to-day exceeds $460,000,000-more than one-half of the interest-bearing debt of the United States. The City of New York needs the trust company to-day to assimilate its securities in order that they may sell their 32 per cent. bonds at a premium.

The live, active, energetic banker, be he state or national, in all the large centers of this country, has recognized the value of trust companies for the accumulation of idle money, for the development of commerce, and for the enlargement of the financial horizon of the United States of America. Many of the larger national banks are financially interested in trust companies in the larger centers; some of the more progressive have organized trust companies and are running them in connection with their national banks practically as departments. It is only a very short period of time until the trustcompany official, keeping pace with the procession of the nationalbank official, will add a national bank practically as a department to the trust company.

In the western country, at least, the trust company occupies the same relation to the masses of the people that the savings bank does to the East. Very few western states have savings banks, the reason being that the trust company in the western states runs a department for savings, and such a department is in itself a savings bank of and for the people, where the thrifty son of toil may deposit his dollar a day, week, month, or year, and receive thereon interest varying from 3 to 4 per cent., with the entire capital, surplus, and undivided profits of the trust company to protect him against loss.

The trust company should not only keep a reserve, but a strong reserve. While it was well enough years ago, when the trust companies simply discharged the functions of trustee, registrar, executor, and administrator, for them to keep a nominal amount of cash on hand, with a comparatively small amount on deposit with banks, that condition has now ceased to exist, and is so recognized to-day. The methods applied to trust companies ten, fifteen, or twenty years ago are not applicable to-day, nor are trust companies doing business on the lines established ten, fifteen, or twenty years. ago. If you will show me the trust company to-day which keeps

a reserve both in cash and in bank in comparison with the successful national banker, I will show you the trust company that not only pays its stockholders a handsome return, but that is constantly developing its business. The surest way to retard the growth of a trust company is to decrease its reserve. The most certain way to develop its resources and power is to increase its reserves.

Well-balanced trust-company officials invite publicity and frequent examinations, not only by the company's auditing committee, but by expert accountants as well. The trust-company official who fears frequent publication of the condition of his institution, and who does not encourage frequent examination of his work and the assets of his corporation, is unjust to himself, his associates, and his corporation.

The interest of the national and state banks and the trust companies are reciprocal. Examine the bank statistics of any financial center in the East, West, North or South, and where you find a great development of financial resources, there you will find the trust company not only doing its part for the development of that particular section, but also paying handsome returns to its stockholders upon the capital invested. The national and state bankers, where they are progressive, although competitors, are all working along the same lines. Of the $4,500,000,000 of deposits carried by the national banking system, practically 10 per cent. of the entire amount are the deposits of trust companies. The most cordial relations should always exist between banks and trust-company officials. Continue to encourage it as you have by this meeting in joint session; each will be greatly benefited, and the interest of both the bank and the trust company greatly advanced.