i:i;l: Her 1 1X0 (Qocnell HnttietBitg Slibratg BOUGHT WITH THE INCOME OF IfHE SAGE ENDOWMENT FUND THE GIFT OF HENRY W. SAGE 1891 The date shows when this volume was taken. To renew this book copy the call No. and give to the libranan. r:'!! "iC^-T"" HOME USE RULES All Books subject to recall All borrowers must regis- ter in the library to borrow books for home use. All books must be re- turned at end of college year for inspection and repairs. Limited books must be LTned within the four week limit ^nd not renewed. Students must return all books before leaving town. Officers should arrange tor the return of books wanted during their absence from • :.'.. town. Volumes of periodicals ' and of pamphlets are-ield in the library as much as ■ ' possible. For special pur- poses they are; given out for a limited time. Borrowers should not use their library pfivileges for ' the benefit of other persons. Books of special value and gift books, yhen the giver wishes it, are not allowed to circulate. ,.^^^^ Readers are asked to re- , ') ,■ port all cases of books U^ marked or matila ted. not deface V>ok? by n^^^9 ^■'4 writing- Cornell University Library HG4309 .K59 1920 The modern trust compan' 3 1924 032 543 542 olin Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/cletails/cu31924032543542 THE MODERN TRUST COMPANY :The?y^o THE MACMILLAN COMPANY NBW YORK • BOSTON • CHICAGO • DALLAS ATLANTA • SAN FRANCISCO MACMILLAN & CO., Limited LONDON • BOMBAY • CALCUTTA MELDOURNB THE MACMILLAN CO. OF CANADA, Lm TORONTO THE MODERN TRUST COMPANY ITS FUNCTIONS AND ORGANIZATION AN OUTLINE OF FIDUCIARY BANKING BY FRANKLIN BUTLER KIRKBRIDE J, E. STERRETT AND HENRY PARKER WILLIS FIFTH EDITION— ENLARGED AND REVISED THE MACMILLAN COMPANY 1920 All rights reserved |\^4^^^ OOPTBIQET, 1906, 1908, 1913, 1920, By the MACMILLAN COMPANY. Set up and electrotyped. Published December, 190S, Eeprinted March, 1906; April, 1908. Revised edition, December, 1913. Fifth edition, enlarged and revised, Noveniber, 1920 " Conservatism is really the foundation of all good banking, and it is more especially so in trust compdny operations than in anything else. The purely trust functions of the old fashioned trust company are undoubtedly the highest develop- ment of the principle of credit and of confidence. They are the highest application of that principle to the relation of man to man in business.'' HON. WILLIAM B. RIDGELY, Comptroller of the Currency, before the Trust Company Section of the American Bankers' Association^ September li, igo4 OrganizatiIon of the Modern Trust Company Banking Department O President Vice-President Treasurer . Secretary Corporate Trust Department Individual Trust Department Receipt of Deposits Disbursement of Deposits bfl Record of Deposits a Loans and their Records Q fc Investments and tiieir Records .y Purchase and Sale of Securities S Letfers of Credit I Foreign and Domestic Exchange O Stockholders' Dividends Operating Costs Expense Account Trustee" Fiscal Agent Registrar Transficr Agent Syndicate Manager Depositary Assignee Receiver Agent V Stocks and Bonds m Mortgages ^ ^j Real Estate I,- tJ Receipt of Trust Funds ■g g Investment of Trust Funds u ^ Payment of Trust Funds W Accounts Safe Deposit Department Savings Fund Department Insurance Department Controller's Department ( Renting of Safes I Deposit of Valuables (Receipt of Deposits Disbursement of Deposits Record of Deposits "Life Insurance Fidelity. Insurance and Surety- ship .Title Insurance (General Books Examinations Statistics PREFACE TO THE FIRST EDITION To a correspondent asking, " What book or books will best give me a working knowledge of trust company and banking methods; particularly regarding the work of the various departments of the trust companies ? " the New York Evening Post recently replied that so far as it was aware no such book had been published. A search in library catalogues confirms the almost equally dis- couraging statement of the Chief Bibliographer of the Library of Congress that " there is not much literature on trust companies ap- pearing in separate book form." On the other hand, much has been written about the functions, organization, and methods of the banks. The reason is easily given. The development of the " trust company idea" is a recent one, and only within the past twenty years have these corporations become a prominent factor in the financial world. Until the organization of the Trust Company Section of the American Bankers' Association in 1896, the only publications in reference to trust companies were short chapters in works on banking and an occasional magazine article. Since that time the transactions of the Trust Company Section and articles in banking periodicals and the financial press have constituted the most important contributions to the subject; but in spite of all that has been written on special lines of trust Company work, it is still difficult to obtain a general knowledge of what a trust company is and how it does its business. The aim of the present volume is to describe the functions and organization of the trust company as it exists in the United States to-day. Its history, which dates from the granting of the first trust company charter in 1822, has already been told in a number of interesting papers and addresses, and is therefore not repeated. Practical experience, consultation of all available literature, the examination of trust companies in various parts of this country, and conferences with their officers, have helped to make a composite viii PREFACE picture. The forms and systems described are those which have commended themselves to the authors' judgment as best adapted to the needs of the average trust company. It does not follow that many others are not equally good. The methods outlined in the following pages, although not complete in every detail, are, it is believed, representative of the best systems now employed. Free use has been made of books and papers on various parts of the subject. To the officers of many trust companies grateful thanks are due for uniformly courteous treatment and much appre- ciated opportunities of studying their methods. Special mention must also be made of valuable help rendered by Parker S. Williams, Esq., of the Philadelphia Bar, and by Miss Elizabeth B. Kirkbride. F. B. K. J. E. S. September 25, 1905. PREFACE TO THE THIRD EDITION Since the first edition of " The Modern Trust Company " was published in December, 1905, the subject has been one of ever in- creasing public interest. To this fact must be attributed the general circulation of so technical a book ; it has even been reported among the " miscellaneous books most in demand " on the shelves of a public library. During this time laws have been passed in many states, tending toward the proper control and regulation of trust companies. Re- newed emphasis has been given to the necessity for the maintenance of substantial cash reserves by all companies doing a general banking business. The relation of trust companies to the clearing houses has received a thoughtful consideration which bids fair to bring about better understanding between the trust companies and the banks. In the present edition all references to laws and to clearing house and stock exchange rules have been brought up to date. New titles have also been added to the bibliography. The panic of 1907, with its immediate demand for corporate vigi- lance, has driven home the conviction that sound banking principles must be the basis of success in all trust company operations. F. B. K. J. E. S. New York, February 23, 1908. PREFACE TO THE FOURTH EDITION The third edition of " The Modern Trust Company " appeared shortly after the panic of 1907. The fresh realization, caused by the panic, of the need for conservative banking ynethods, has since borne fruit in considerable legislation and many improvements in practice. The last five years have witnessed a steady and healthful growth of the trust companies of the United States, together with a more insistent demand for rigid integrity, sound banking, and cooperation between all classes of financial institutions. The fourth edition appears at a time when the need for a scientific currency system is more generally realized than ever before. The trust companies can take an important part in the creation of an intelligent public opinion. The new edition of this volume has been brought up to date, and the bibliography has been rearranged and amplified; otherwise the book is unchanged. F. B. K. J. E. S. New York, October i, 1913. PREFACE TO THE FIFTH EDITION The great war put the Federal Reserve system to an early and severe test and during it many trust companies entered the system from motives of patriotism. The strain of war developed the strong points of the system convincingly. Inherent weaknesses and wrong practices were likewise made manifest. Congressional action and regulations of the Federal Reserve Board are in some respects cor- recting early mistakes and setting new standards of practice. The rapid assumption of trust p<5wers by national and state banks is a development of no little importance to the people of the United States. All state and national banks to-day have the power to serve their communities in every phase of fiduciary banking. To the trust companies a broader banking field has simultaneously opened larger possibilities for usefulness and profit. If the trust companies have in the past been " department stores " of credit, the term can now be applied more truthfully than ever before. The mobilization of our gold reserve, the establishment of the re- discount privilege, the nation-wide par clearing of checks, the creation of an open market for bankers' acceptances and prime commercial paper, the development of foreign banking and of dollar exchange have occurred simultaneously with the change in the position of the United States from a debtor to a creditor nation. Abuse of the rediscount privilege, selfish opposition to par clear- ing of checks, and other difficulties will be corrected by a growing public opinion which can be counted on to demand sound practice and perfect banking machinery and service. The authors are fortunate in having associated with them H. Parker Willis, who was "expert to the House of Representatives Committee on Banking and Currency" during the formation, dis- cussion and passage of the Federal Reserve Act and who was later the first secretary of the Federal Reserve Board. The chapters on " Membership in the Federal Reserve System," " Making Use of the Xll PREFACE Federal Reserve System," " Credits and Credit Department," " Oper- ating Costs," " Foreign Banking " and " Commercial Paper " are by him. Other new chapters are on " Tax Department," " Statistical Department " and " Investments." The text throughout has been revised and amplified. All legal references have been brought up io date. New legal and accounting forms haVe been included. Free use has been made of original sources of information. Grate- ful acknowledgment is offered to the many bank and trust company officers who, through helpful suggestion and free access to their forms, have aided in the work of revision. Special mention must be made of the help rendered by Hugh Satterlee, Esq., of the New York Bar, and by Miss Elizabeth B. Kirkbride. The former has verified the legal references, while the latter has again revised the biblio- graphy. It is the hope of the authors that the book may continue to set a standard of sound and progressive banking and be of practical use to those who manage or work in banks and trust companies or who come in contact with them as counsel, client or student. F. B. K. J. E. S, New York, October i, 1920, TABLE OF CONTENTS PAGE Preface vii CHAPTER I Functions . i Introduction i Banking ., , 7 Corporate Trusts 8 Individual Trusts ,...,,. 10 Care of Securities and Valuables 12 Life Insurance, etc. 13 Government Regulation 13 Public Trustees 15 II Organizing a Trust Company 20 Charter and Capital 1. 20 Stockholders , 29 Board of Directors 32 Interlocking Directorates 36 III Membership in the Federal Reserve System .... 39 Introduction 39 Membership in Reserve System . 39 Application 40 Rejection of Applications 43 Admission to Membership 43 Compliance with Reserve Act 44 Privileges of Membership 45 Duties and Obligations of Membership 46 Loss of Membership 46 Trust Powers of National Banks 47 Method of Making Application 48 Should Trust Companies Apply? 49 Character of Reserve System 49 Trust Companies on the Margin 50 Reserve System no Panacea 5^ Trust Companies Controlled by Banks 52 xiv TABLE OF CONTENTS CHAPTER PAGE IV Officers 54 Introduction ., 54 President 57 Vice-President 61 Treasurer 62 Secretary 64 Manager of Corporate Trust Department (Trust Officer) 66 Manager of Individual Trust Department (Trust Officer) 67 V Banking Department 71 Organization 71 Receiving Teller .....«,..,... 72 Paying Teller 79 Clearing Trust Company Checks 87 Care of Deposits , 103 Reserves 115 VI Banking Department (Continued) 118 Loans and Theiir Records 118 Money Rate 133 Investments 135 Purchase and Sale of Securities 140 Stock Ledger and Stockholders' Dividends 142 Expense Account 144 Petty Cash Receipts 148 Petty Cash Pgyrtients 148 Payment of Salaries 149 VII Making JJse of the Federal Reserve System . . . .151 Control of Reserve Banks ici Process of Rediscounting im Elements of Eligibility jcg Testing of Eligibility leo Direct Borrowing jrg How Credit Is Granted 157 Collections and Renewals i.eg Classes of Paper jhq Banker's Acceptance i 161 Keeping Up the Reserve Balances ....... 164 Cost and Saving Through Federal Rieserve System . . 165 Some Current Problems of Trust Companies . . . .167 TABLE OF CONTENTS xv CHAPTER PAGE VIII Credits and Credit Department 169 Introduction 169 ■Function of Credit Department 170 Basis of Credit * 171 Customer's Statement 171 Helping the Business, Man 172 Analysis of Condition 176 Other Sources of Information 179 Cooperative Agencies 182 Use of Credit Information 183 Keeping Track of Liabilities 185 General Study of Credit 185 IX Tax Department 189 Introduction , 189 Federal Income Tax Laws 189 The War and Taxation 191 Trust Company's Interest in Tax Matters 191 Income Tax Returns 192 Withholding 195 Inheritance Taxes 195 Work of Tax Department 196 X Operating Costs 19B Introduction ., 198 Trust Company Costs 199 Banking Costs , 201 XI Statistical Department 217 Introduction 217 Functions 218 Organization 219 Quotation Index 220 Analysis of Securities 225 Analysis of Trust Accounts 233 Future Development 234 XII Foreign Banking 239 Introduction 239 Nature of Foreign Banking 239 Organization for Foreign Banking 241 Foreign Discounting 242 xvi TABLE OF CONTENTS CHAPTER ^ PAGE Collecting 243 Foreign Remittance and Exchange* 245 Acquiring Foreign Credit 247 Some Special Services 248 Foreign Exchange Policy and Market 248 Internal Organization 249 Controlling Foreign Business 258 XIII Corporate Trust Department 259 Trustee . ., 259 Fiscal Agent 269 Registrar 274 Transfer Agent 277 Voting Trusts 286 Manager of Underwriting Syndicates 286 Depositary Under Plans of Reorganization .... 288 Assignee and Receiver 291 Agent 292 Accounts 293 Compensation 294 XIV Individual Trust Department 295 General Organization 295 Appointment 296 Care of Stocks and Bonds 301 Index of Securities 304 Arrangement of Securities! in Vault 308 Collection of Interest and Dividends 311 Care of Mortgages 315 Care of Real Estate , . 323 Insurance on Real Estate 331 XV Individual Trust Department (Continued) .... 334 Receipt of Trust Funds 334 Disbursement of Trust Funds 335 Record of Individual Trusts 338 Individual Trust Ledger 348 Trust General Ledger . 351 Compensation 355 XVI Investments 360 Fundamental Principles 360 Legal Basis , 362 TABLE OF CONTENTS Xvii CHATTER PAGE Rules for Investing 366 Types of Securities 370 Purchase and Sale of Securities 376 Machinery of Investing 377 XVII Commercial Paper 379 What Is Commercial Paper? 379 Essentials of Commercial Paper 380 Types of Paper , 381 Action of Reserve Board 382 Theory of Commercial Paper 387 Policy as to Paper 388 Open Market Dealings 389 Dangers of Buying Commercial Paper 390 The Best Type of Paper » ... 391 XVIII Safe Deposit Department 397 Introduction 397 Renting of Safes ..,.,.... 401 Deposit of Valuables 407 General Books ........ ,1 .,... . 410 XIX Savings Fund Department 413 XX Life, Fidelity, and Title Insurawe and Suretyship . 419 XXI General Accounting 423 The Controller ,.,.,,„,.. 423 Company's General Ledger 424 Audits and Examinations . . ., ,„ ., ,., ., .; . . 433 XXTI Miscellaneous Subjects 440 Correspondence or Mail Room 44° Clerical Force , . . . . 446 Messengers:, Watchmen, and Cleaners 450 Office Building 4Si Luncheon Room 453 Purchase and Care of Supplies 454 Advertising . 458 xviii TABLE OF CONTENTS PAGE Appendix 461 Code of Laws of the District of Columbia (Subchapter XI) 461 Schedule of Charges — California 47^ New York Stock Exchange, Requirements from Appli- cants for Listing Stocks or Bonds 480 New York Stock Exchange, Rules for Delivery . . . 496 Bibliography 511 Periodicals and Annual Publications 511 Books and Articles on Trust Companies 513 References to Related Subjects 518 Trust Companies and Their Equivalents in Other Coun- tries 523 List of Forms ,...,.,,.,....'.. 527 Index 533 THE MODERN TRUST COMPANY CHAPTER I FUNCTIONS INTRODUCTION Modern industrial society has developed the bank as a means of facilitating exchange, while it ha:s developed the trust company as a means of facilitating the distribution and investment of capital. The two services — that of extending credit and facilitating ex- change, on the one hand, and of lending to borrowers or facilitating the growth of industry, on the other hand — are distinct and separate. In some countries this separate character is fully recognized by law and custom. Commercial banking is there a profession apart, while the task of caring for and investing funds which are expected to yield an income is performed by institutions solely devoted to that purpose. Conditions in the United States have not fostered this separate development, but have rather tended to fuse the functions of banking and investment. Under the Federal Reserve Act pro- vision has been made for the performance of fiduciary functions by national banks, while in most states trust companies have for many years exercised banking powers as ancillary to their investment functions. It is nevertheless true to-day and probably will continue to be true that a large number of institutions specialize in the per- formance of fiduciary and investment functions, and these are for the most part trust companies organized under state law. With the trust company as such, this book is especially concerned, A tr.ust company might be organized without any banking func- tions, and there are to-day companies at various points in the United states whose banking functions are either rudimentary or prac- 2 THE MODERN TRUST COMPANY tically non-existent. The early history of trust companies in the United States, however, showed the bankipg functions to be so de- sirable that they came to be regarded as a natural and integral part of the trust company's work. The modern trust company as a rule, therefore, includes as the two chief parts in its organization, the banking department and the trust department. The work of the banking department may be limited to the acceptance of deposits and the making of loans, or it may include all the varied activities of commercial banking. In either case its relation to the trust department is most important. The advantages of combining the two functions are evident. A trust company without any banking depiartment would have to deposit with some other institution the funds which it holds in cash as a part of its fiduciary operations, and would also have to apply to other institutions for many kinds of assistance and recognition which its own banking department might furnish. The trust company can also serve the convenience of its clients by offering them banking facilities and can furnish trust facilities to. its banking clients, thus making each department contribute to the success of the other. The dangers of the system are equally clear. The first require- ment of all sound trust business is the integrity of the trust estate. A distinction must therefore be maintained between the funds in the trust department and in the banking department. The trust com- pany cannot allow its trust funds to be employed in the conduct of its general banking business, nor can it risk a loss of confidence in its trust department through hazardous undertakings in its banking department. " The special character of trust company banking has been recog- nized by law. The national bank is permitted to issue its notes, which become part of the currency of the country. Its funds are largely employed in making unsecured loanS^ by discounting the notes of its customers. Trust companies, on the. other hand, are not al- lowed to issue such notes, and are in some states prohibited from discounting paper. The national banks are allowed to make loans secured by real estate only within prescribed limits and subject to various restrictions,^ while the trust companies invest a considerable iBy Section 9763 of the Compiled Statutes (Act of December 23, 1913, Chap. 6, FUNCTIONS 3 portion of their funds in mortgages, and are in other ways allowed to keep their assets in less liquid form. Subject to certain qualifica- tions, national banks are not permitted to rAake loans exceeding one- tenth of their capital and surplus to any person. The provisions in trust company charters have been more liberal and have enabled these institutions to make larger advances, and so to take part in the devel- opment of the resources of the country on a larger scale. National banks, as a rule, do not pay interest on the accounts of individuals or firms, but do extend credit to them. Trust company deposits tend to be less active than those of commercial banks. The trust com- panies are, therefore, able to allow interest and thus to attract those who seek some return on idle funds or on "savings, but who are not in need of unsecured loans. The problem of combining banking and trust functions has been met in several ways. Even before the adoption of the Federal Reserve Act, some states allowed the same companies to exercise commercial banking and trust powers in separate departments. An- other method is for the same individuals to' organize a national bank under national laws and a trust company under state laws. Still another expedient is the organization under state laws of a securities company or trust company controlled by a national bank with the stock interest in the former distributed among the owners of the stock of the bank and evidenced by indorsement on its certificates. This enables a closely affiliated and controlled organization to exercise legitimate functions which are outside the province of a national bank. The practice in Illinois of allowing a banking company to qualify under the law granting trust powers, is based on a sounder principle than the close relation between institutions acting under separate charters, amenable to different laws, but controlled by identical interests. By a recent amendment of the New York statute the Superintendent of Banks may authorize banks applying therefore to act in any fiduciary capacity in which trust companies are pertnitted to act. Sec. 24, as amended September 7, 1916, Chap. 4S1) national banks not situated in a central reserve city may make loans secured by farm lands and unencumbered real estate located within one hundred miles of the bank, but loarts on farm lands may be made for no longer time than five years, and on other lands for no longer time than one year, and the aggregate of such loans shall not exceed 25% of the bank's capital and surplus or one-third of its time-deposits. 4 THE MODERN TRUST COMPANY Under the Federal Reserve Act national banks are permitted to exercise fiduciary powers, while the privilege of membership in the Federal Reserve system has been extended' to trust companies. The powers of trust companies vary in different states, and when they are created by special legislation, local companies are found with different charter privileges. The capital and surplus of these institutions are liable for their acts in fiduciary capacities, and in some states they are required to deposit with one of the state de- partments a fund as a special guarantee. The liability assumed is generally accepted by the courts in lieu of the bonds which individuals acting in similar capacities are required to give. It is customary for the courts to designate or approve certain trust companies as depositories for funds paid into court, and the effect of such designation or approval is to relieve executors, trustees, or others acting in a fiduciary capacity and depositing with these com- panies from -liability for loss through their failure. A person charged with due care in the selection of a depository could not be held to have been wanting in such care in choosing as a depository a trust company which the court has itself approved. The development of trust companies in the United States has been remarkably rapid. Since 1822,^ when the first legal authority was given for the exercise by corporations of fiduciary powers, they have steadily grown in number until there are now more than twenty- one hundred, distributed as follows: — Alabama 31 Florida 17 Louisiana 43 Arizona 10 Georgia 24 Maine 51 Arkansas 39 Idaho 11 Maryland 24 California 34 Illinois 79 Massachusetts 102 Colorado 18 Indiana 154 Michigan 9 Connecticut 66 Iowa 113 Minnesota 18 Delaware 17 Kansas rf Mississippi 24 District of Columbia 6 Kentucky 60. Missouri 83 1 April 17. i8s2. The Farmers' Fire Insurance & Loan Company of New York (now the Farmers' Loan and Trust Company), incorporated on February 28, 1822, was granted trust powers by a supplement to its charter. March 9, 1830, the New York Life Insurance & Trust Company was chartered. February 26, 1836, The Pennsylvania Company for Insurances on Lives and Granting Annuities of Philadelphia, incorporated as a life insurance' company on March 10, 1812 was granted trust powers by a supplement to its charter. March 17. 1836, The Girard Life Insurance, Annuity & Trust Company of Philadelphia (now The Girard Trust Company) was chartered. All these companies are still flourishing. FUNCTIONS Montana 19 Nebraska 23 Nevada 3 New Hampshire ... 12 New Jersey 1 18 New Mexico 10 New York loi North Carolina 76 North Dakota 3 Ohio 87 Oklahoma 8 Oregon 6 Pennsylvania 308 Rhode Island 13 South Carolina South Dakota Tennessee . . . , Texas Utah 24 13 74 81 8 Vermont 38 Virginia 26 Washington 24 West Virginia 25 Wisconsin 15 Wyoming 8 Hawaii 7 Total 3173 Their business in all departments has ^own a steady increase, and the trust companies of the United States to-day carry deposits amounting to over $8,776,347,000.^ Net deposits in the 7,785 national banks aggregate $11,981,132,000.^ The earning power of trust companies has equalled and even ex- ceeded that of the banks, and the stock of those companies which are well established and doing a flourishing business sells at such a premium that investment in it at its market value gives a very low return. Trust company failures have been few and far between, and where they have occurred they can be traced to a disregard of sound bank- ing principles and to the assumption of unwarranted risks. Even in the case of companies which have failed there is no record of any iinpairment of trust funds, whatever loss there was having been borne by the stockholders and, to a less degree, by the depositors. This fact, the result of the absolute separation of trust assets from assets belonging to the company, is the strongest argument for the employment of trust companies in fiduciary capacities, and explains their rapid growth in popular favor. The literature put out by these institutions invariably recites the advantages to be gained by dealing with them instead of with indi- viduals. The following is a good example of such reasoning : — "The Advantages of a Trust Company as Trustee. " A trust company is preferable to individual trustees, because it possesses every quality of desirability which the individual lacks, to wit : — Ijune 30, 1919. Compiled from "Trust Companies of the United States," published by the United States Mortgage & Trust Company, New York. 2 June 30, 1919. Report of the Comptroller of the Currency, 1919. 6 THE MODERN TRUST COMPANY (i) Its permanency; it does not die. (2) It does not go abroad, (a) It does not become insane. (4) It does not imperil the trust by failure or dishonesty. (5) Its experience and judgment in trust matters are beyond dispute. (6) It never neglects its work or hands it over to untrustwrorthy people. (7) It does not refuse to act from caprice or on the ground of inexperience. (8) It is invariably on hand during business hours and can be consulted at all times. (g) Its wide experience of trust business and trust securities is invaluable to the estate. (10) It is absolutely confidential. (11) It has no sympathies or antipathies and no politics. (12) It can be relied upon to act up to its instructions. (13) It does not resign. (14) All new investments of value suitable ioi trust estates are offered in the first instance to trust companies, and in that way it has a choice of valuable security ; and as its purchases are on a scale of magnitude, it can usually buy at a rate which is lower than that at which the individual trustee can purchase." The most common objection to the a^Spointment of corporate trustees is thus stated by Augustus Peabody Loring, Esq. : ^ — " The trust companies, which have of late years become so numerous, to a considerable extent do away with the element of personal risk attaching to an individual trustee; but they lack the advantages of personal management. These companies sometimes fail from improper management as utterly as individuals do, and as a rule the lack of personal management results in securing the minimum return only on the amount invested, and lacks the great advantages often secured by the able personal oversight of individual trustees." Thomas Leaming, Esq., viewing the matter from the standpoint of the beneficiary, says, " No doubt there are some objectionable fea- tures in having for a trustee a corporation, which has neither a body to be kicked nor a soul to be damned." ^ The question, after all, comes back to the personal qualifications of corporate officers and individuals. If the former are less capable than the latter, the fault is with the particular company, — not the system, and if interest returns are sometimes less under corporate management, this fact is more than equalized by the added safety to the corpus of the estate. 1"A Trustee's Handbook," p. 15. 2 " Trust and Title Insurance Companies," Lippincott's Magazine, Vol. XLII, p. 887. FUNCTIONS 7 A " Trustee Company " has been suggested as a proper title for the company doing a legitimate trust business, and is the name used in Australia and in New Zealand. In many states the use of the word " trust " in corporate titles is now regulated by law. Confu- sion has arisen in the popular mind betwee'ri the trust company and the trusts or industrial combinations. The usual functions of a trust company are : banking in a more or less limited form, execution of corporate trusts, execution of indi- vidual trusts, care of securities and valuables. In addition, other functions are sometimes exercised, such as life, title, and fidelity in- surance, and the business of becoming surety. The earlier companies in the United States were chartered to manage individual estates only and to act in certain fiduciary capacities; the recent develop- ment of the trust company has been in the direction of banking func- tions and corporate trust business. It is worthy of note that the life insurance companies which origi- nally secured trust powers have, with but few exceptions, given up their life insurance business, and that most of the fidelity insurance and surety business is given over to companies which now make a specialty of such risks. In the same way, many title insurance com- panies transact a banking and trust business, but tend to confine them- selves more and more to title insurance. In other words, the fact is being recognized that the assumption of vast risks contingent on future occurrences is not compatible with the absolute security which is essential in the transaction of legitimate trust business. BANKING The banking functions of trust companies may include any or all of the following : — The receipt of money deposits payable on demand and subject to check, or payable at a fixed date, or according to special agreement. Interest is usually allowed on all deposits above a fixed minimum amount or on the total sum. The advancing of money secured by the hypothecation of stocks, bonds, life insurance policies, bonds and mortgages, or other per- sonal property. 8 THE MODERN TRUST COMPANY The making of real estate loans, secured by bond and mortgage. It is customary to loan not over two-thirds of the value of improved property ; when the property is unimproved,- not more than half. The discounting of paper. This was formerly engaged in princi- pally by companies transacting a commercial banking business. The purchase of unsecured paper, permitted in some states where discounting is not allowed. The discounting of paper eligible for rediscount with a Federal Reserve Bank. This is becoming increasingly important. The purchase and sale of securities. The guarantee of issues of bonds, or at le^st setting the trust com- pany's stamp of approval upon them. The issue or guarantee of letters of credit, and the transaction of a foreign exchange business. The care of savings deposits. For this purpose a separaste depart- ment is usually maintained. COREORATE TRUSTS Among the most important functions of a trust company are those relative to the business of other corporations. " Of late years the trust companies in the Eastern cities have been selected as trustees instead of individuals whenever' the law of the state where the property was situated allowed such selection. Trust companies have manifold advantages over individuals in such a relationship; they do not die; the large amount of financial business which they daily transact provides them with the machinery for such purposes; while their well-known names stand as evidence to the purchasing public that at least the necessary formalities have been complied with. Beyond that responsibility the trustees of corpora- tion mortgages usually assume none. " In recent years the trust companies have shown a tendency, when acting as mortgage trustees, to recognize a greater moral responsibility than they at first were willing to bear. Trust companies did not, of course, intend to appear as in any way guaranteeing the bonds to which they certified, though that seems often to have been the erroneous opinion of the unthinking; but trustees now acknowledge themselves bound within the limits of the mortgage to use their influence to protect the interests of the'bondholders. A trust com- pany which should now allow the issue of unsecured bonds because of some glaring defect in the language of the mortgage, would not longer be morally excused by financial opinion, though perhaps held technically innocent. "One way in which the sentiment attributing some sort of ethical respon- FUNCTIONS 9 sibility to trustees of corporation mortgages manifests itself is through slight alterations in the wording of the mortgage itself. The old language was that the trustee was to be held harmless under all circumstances. Now the trustee is often found willing to assume responsibility at least for gross negligence of servants or clerks not carefully selected. If to some such phrase be added a more careful drawing of the mortgage as to its provisions against unauthorized issues of bonds, a better compliance with the ethics of the situation would be had ; for it is undeniable that a part of the public complaint against the fraud- ulent issue of bonds should be directed against the inadequate safeguards imposed in the mortgage rather than against the trustee." ^ As trustee under corporate mortgages and trust deeds, the trust company acts for the bondholders. It is customary for it to authenti- cate each bond issued subject to the provisions of the mortgage, to represent the bondholders in case of default, and to exercise such other functions as may be provided in the mortgage. As fiscal agent, it dispenses coupon and interest payments on bond issues, and dividends on stock. It receives sums set aside as sinking funds to provide for the retirement of obligations at maturity, or, when bonds are subject to redemption, draws the specified amount by lot and pays the principal. As registrar, the trust company authenticates certificates of stock and bonds in order to prevent an over-issue, and to reduce the chance of loss or theft. As transfer agent, the company attends to perfecting transfers of ownership for stock and bond issues or parts thereof. As manager of underwriting syndicates, the trust company issues the prospectus and markets the securities of corporations which are being launched, or of established companies which are putting out new securities. In railroad and other reorganizations, the trust company takes a prominent part, acting both as a depositary for, and as a representa- tive of, the committees which formulate and execute the plans of reorganization. Its officers often have a large share in the prepara- tion of such plans. As assignee and receiver, the trust company acts in the same capacity for corporations as for individuals and firms or partnerships, assisting in winding up insolvent businesses and in conducting em- barrassed ones. 1 " Corporation Finance,'' Thomas L. Greene, p. 59. 10 THE MODERN TRUST COMPANY INDIVIDUAL TRUSTS The execution of individual trusts is the function originally as- sumed by trust companies. The various other forms of business which are now engaged in, have, with the exception of life insurance, been later developments of the trust company idea. The earliest power granted these companies was to receive moneys or other prop- erty, real or personal, in trust. The trust company now also acts as executor and administrator of the estates of decedents. As executor appointed by the will of a decedent, it takes out letters testamentary upon probate of the will, advertises, files inventory and appraisement, pays debts, collects claims, makes the requisite account- ing to the probate or orphans' court, and makes distribution of the estate in accordance with the terms of the will and the court's decree. As administrator acting under appointment of the registrar of wills or probate court, it performs similar duties, distributing the estate in accordance with decedent's will if there is one, or if there is none, in accordance with the intestate laws of the state, which specify the order of succession and distributive shares in the case of estates of decedents leaving no wills. There are different kinds of adminis- trators, in any of which capacities a trust company may be called upon to act. In Pennsylvania, for example, there may be (a) a general administrator, when there is no will; (b) an administrator cum testamento annexe, when decedent has left a will without nam- ing an executor or the executor named refuses to act or has died; (c) an administrator de bonis non, when the first administrator has died or has been discharged before the estate has been fully ad- ministered and his successor is appointed to complete his work [this may occur in both cases (a) and (&) ; if it occurs when there is a will, the new administrator is called administrator de bonis non cum testamento annexo] ; (d) an administrator pendente lite, when ap- pointed to take charge of an estate pending, litigation on the will of the decedent; (e) an administrator durante minoritate, when ap- pointed to act during the minority of an executor ; (/) an adminis- trator appointed under ancillary letters to act in a particular state when other letters have been issued elsewhere. FUNCTIONS II As trustee under a will, the trust company, carries out the provisions of the will, investing and managing the estate or particular fund in accordance with the directions of the testator. As such it may hold real and personal property. As trustee under a deed or private agreement, a contract is entered into between the company and the owner of the property, by which the title to the property is vested in the corporation subject to the terms recited in the instrument. Such deeds of trust may be revo- cable or irrevocable. Marriage settlements are frequently made in this way. Accounting to the probate or other proper court by testamentary trustees is generally regulated by law. Accounting by trustees under deed is usually regulated to some extent at least by the provisions of the instrument creating the trust. The trust company acts as guardian, curator, or committee of the estates, and in some states, of the persons of minors, those who are insane or mentally incompetent, spendthrifts, drunkards, and any other persons not legally qualified to take charge of their own affairs. In the case of a minor, the trust terminates on the ward's becoming of age ; in other cases, when the disability is removed, or in accord- ance with a decree of court. These appointments are frequently made by order of court, and to it accounting must be made. In some states the company is styled " conservator " when caring for the estates of persons of unsound mind. When acting as attorney in fact, the company obtains its authority by virtue of a letter of attorney which usually is or can be recorded, conveying certain definitely specified powers. This may either be to perform a single act — such as to satisfy a mortgage — or may be broader and continuing, granting authority to sell and transfer securities and collect income. A general power of attorney, as the term indicates, is a delegation to another of the general powers of the person appointing — as to pajmients, collections, transfers of prop- erty, and all transactions of a business nature. As agent merely, the company takes charge of property, real or personal, for its owner,.but such agency does not imply nor ordinarily include authority to sell or convey title. As assignee, the trust company takes possession of the property 12 THE MODERN TRUST CQMPANY assigned for the purpose of carrying out the terms of the deed of assignment in the interest both of the assignor and the creditors of the assignor. The deed of assignment is an acknowledgment of an embarrassed or insolvent condition, and the efforts of the assignee are directed to realizing as much as possible from the assets intrusted to its management. As receiver, the duties may be very similar to those of assignee, although they are usually broader in scope. The business may not be insolvent, and the application for the appointment of a receiver may be due to temporary difficulties only. By such an appointment the property is preserved intact and equal treatment is afforded cred- itors. An able receivership often results in the adjustment of diffi- culties and the return of the property to its owners on a paying basis. While in the case of assignee the appointment is by the indi- vidual, partnership, or corporation executing the deed of assignment which specifies the powers and duties of the assignee, in the case of receiver the appointment is by a court and the company so appointed acts as an appointee or ministerial officer of the court, and as such is directly subject to the court's orders. As custodian or depositary, the trust company sometimes holds property the title to which is in dispute, delivering the same when the ownership is legally determined. In taking charge of escrows or conditional instruments or deeds delivered to a third party until the condition is performed, the trust company acts in a similar capacity, as the joint representative of both parties. The trust company acts as the representative of both the living and the dead in practically every legal relation in which an individual is qualified to act. Its function is not only to keep intact the estate of which it has charge, but to look to and safeguard the interest of every beneficiary. CARE OF SECURITIES AND VALUABLES The functions already recited have resulted in the assumption of the duty of caring for property other than that of the estates held in the trust department. In the safe deposit department, individual FUNCTIONS 13 safes are rented, bulky packages — not containing stocks or bonds — are received on storage, certificates of deposit covering securities are issued, and provision is made for access to, and examination of, the property so deposited. For personal property received on stor- age, the charges are either according to bulk or value. Wills are usually receipted for and kept without charge. LIFE INSURANCE, ETC. Issuing life insurance policies, . and granting annuities payable during the life of the beneficiary, were formerly important trust company functions, now usually delegated to companies making a specialty of such business. The examination and insurance of real estate titles is a later de- velopment often found in connection with the usual trust functions. Fidelity insurance and suretyship providing against loss by reason of the dishonesty of individuals and the non-performance of obliga- tions, contracts, etc., have often been combined with the various forms of trust company activity. They are, however, largely passing into the hands of corporations especially organized for the transaction of such business. GOVERNMENT REGULATION National legislation provides for the incorporation and regulation of trust companies in the District of Columbia.^ Under the Federal Reserve Act the Federal Reserve Board is au- thorized to grant to national banks applying therefor, when not in contravention of state or local law, the right to act in fiduciary capac- ities. Membership in the Federal Reserve system has been extended to trust companies upon condition that they comply with the same general requirements as banks in the mattef of reserves. The Fed- eral Reserve Board in its regulations has permitted member trust companies to continue to lend under the broader provisions of state laws, yet it has in a number of ways ^ tried to restrict their lending powers. Rediscounting with Federal Reserve Banks is conducted 1 See Appendix, p. 461. a See Chapter III. 14 THE MODERN TRUST COMPANY under exactly the same system of control, supervision and regulation which applies to the banks that are members of the system. Until such legislation was enacted, corporations exercising trust functions were entirely governed by state laws. Hon. William Barrett Ridgely, Comptroller of the Currency, in 1904,^ while discussing the tendency of banking corporations under state control to increase more rapidly than national banks, said : — " Probably the principal reason for this tendency is the great increase in the number of trust companies which have been organized during the last ten years. These companies, organized under state laws originally designed to provide for companies doing a strictly trust business, are taking advantage of the liberal character of those laws, and a very large portion of the new organizations are merely commercial banks, having trust company privileges perhaps, but in reality doing comparatively little strictly trust company busi- ness. The laws of the different states, particularly in regard to the cash reserves to be held, and loaning money on real egtate security, are so liberal that organizations of this character have a great advantage over the national banks in the inducements which they can offer their customers. It is naturally to be supposed that any one contemplating the organization of a new bank, other things being equal, will be inclined to do so under the laws which allow the greatest freedom from governmental interference, restriction and control." An examination of the laws of the various states is interesting as showing the attempts which are being made, at regulation. Most of these laws have been enacted within recent years and to-day there are but few states which do not have such statutes on their books. The step which Massachusetts first took in requiring a legal re- _ serve to secure deposits has been followed by similar action in bther states. In general, the wisdpm of prohibiting companies which en- gage in the care of estates from assuming ex;cessive risks has become better recognized. The promotion and underwriting of commercial ventures and the assumption of unknown risks are functions not compatible with the proper exercise of the duties of trustee or executor. Hon. Frederick D. Kilburn, State Superintendent of Banks of New York,^ says : — "This (state) control should be sufficiently coihprehensive to regulate the organization, provide ample supervision, and restrict investment, in a way that will conserve, in so far as human ingenuity can provide, the interests of the 1 " Annals of the American Academy of Political and Social Science," Vol. XXIV, p 23. 2 Ibid., Vol. XXIV, p. 42. FUNCTIONS 15 public. Investment by such institutions in untried securities,! promotion of questionable enterprises, speculative underwriting of stock or bonds, and all other acts of a nature involving dangerous investment or promotion of individual interests, should not only be prohibited, but made a penal offence if indulged in contrary to law." Such views are held by many people wjio see with concern the assumption by trust companies of functioris and risks which were never dreamed of by those who framed the laws under which they act. The supervision of trust companies by the separate states aims to provide an elastic system to supplement the rigidly guarded powers of the national banks, and one which can "adapt itself to changing conditions and enlarging needs, leaving for solution according to the requirements of each section of the country such questions as proper functions, reserves, and the authority to establish branch offices. PUBLIC TRUSTEES The great war forced the United States Government into the trust company field through the creation of the office of Alien Prop- erty Ciistodian. An Act of Congress known as the Trading with the Enemy Act was approved October 6, 1917- Under this law and executive orders issued in pursuance thereof, it became the duty of all persons in the United States having the custody or control of any property of whatsoever nature belonging to, held for, or owing to an enemy person, to make report thereof to the Alien Property Custodian, by whom it was to be administered with all the powers of a common-law trustee. At the close of business on February 15, 19 19, 34.40° reports of enemy property had been received. The property of each enemy person is treated as a separate trust and is administered by an organization which is built on the general lines of a trust company. The number of separate trusts now being administered amounts to 32,296, and they have an aggregate value of $502,945,724.75. No trust company in the world handles so many trusts as the Alien Property Custodian, and none has been compelled to handle even a l6 THE MODERN TRUST COMPANY fraction of the number while in the process of building an organiza- tion to take care of the work. Upon the Bureau of Trusts will rest the continuing responsibility of conserving, administering, and accounting for the properties of enemies as long as the office exists.^ Although the Bureau of Trusts is the largest bureau in the office of the Alien Property Custodian, it would have been many times its actual size but for the depositaries which Congress provided for in the act. Over 500 banks and trust companies have been so designated throughout this country and its territories and insular possessions. Depositaries are designated for all enenjy properties other than money and securities of the United States. Money and securities of the United States are deposited in the Treasury. Responsible banks and trust companies which report enemy property are designated, whenever possible, depositaries for such property. Responsible banks or trust companies are designated depositaries for properties reported by others in those places, if practicable, where such prop- erties are situated, preference being given to those banks or trust companies which are members of the Federal Reserve system. In unusual trusts an individual is designated co-depositary with a bank or trust company, where his familiarity with the property makes such a course advisable. There are no local custodians and no ex- clusive depositaries. There may be, and frequently are, many de- positaries in those places where large numbers of enemy properties (in several trusts) are located. When the Trading with the Enemy Act was originally passed there was little accurate or definite knowledge as to the extent of the Ger- 1 An analysis of the books in the Division of Accounts! of the office of the Alien Prop- erty Custodian and the demands on file not yet complied with as of February 13, 1919, reveals the following facts regarding the nationality of the former owners of the property seized: Nationality Number of Estimated Value trusts opened of property German enemies '. . . . 17,339 $336,855,090.39 Austrian enemies 7,580 39.55S.5S7.34 Interned enemies - 140 3,457,898.17 American enemies 648 91,866,053.40 Other enemies ,,567 40,371,35463 Net Income from Treasury Investments 839,770.82 Total 27,274 $502,945,724.75 FUN.CTIONS 17 man investment in the United States. While it was known to be large it was not generally suspected of hieing either powerful or particularly unfriendly to American interests. Consequently, the original Trading with the Enemy Act made- the Alien Property Cus- todian a mere conservator, restricting his powers of disposition of enemy property to cases where it was necessary to make sale in order to prevent waste and protect the property. When Congress passed the amendment giving to the Alien Prop- erty Custodian the general power of sale, it was with the purpose in mind that the German industrial army on American soil should be captured and destroyed. Germany very promptly recognized the tremendous import of the new aspect of things when the sales amendment was adopted and a general program of sale of enemy-owned industries was announced. She bitterly protested through ofHcial channels that the plans of the Alien Property Custodian " were designed to destroy Germany's economic existence upon this continent." ^ The Public Trust Office of New Zealand * was established in 1872. At the close of 1918 the office was administering 16,593 estates of a value of £17,153,031.^ Under the New Zealand law all capital moneys in any estate vest in the Public Trustee and are placed in one general fund called the Common Fund, unless there are specific instructions to the contrary. The capital and interest of all moneys so invested are guaranteed by the state. The investments are conse- quently liquid, as the securities in the Common Fund are not ear- marked to any special estate. The state guarantee does not apply in cases where the Public Trustee is given specific directions in regard to investments which are to be made and held outside the Common Fund. The Public Trustee is by statute given power to elect to administer small estates of a value not to exceed £400. This power applies where a person leaves a will or dies intestate. The only expense involved is a court fee of three shillings. 1 Report of Alien Property Custodian, 1910, pp. 7-23. 2 See Public Trust Office Act, 1908. Public Trust Office Amendment Acts, 1912, :9i3, 1917, 1919." sThe Public Trust Office — Hand-book of the Public Trust Office, Wellington, N. Z., 1919. i8 THE MODERN TRUST COMPANY Great Britain followed the example of New Zealand by the passage of the Public Trustee Act of 1906,'^ whith became operative on January i, 1908. The act applies to England and Wales, but does not extend to Ireland or Scotland. The rapid growth of the Public ^Trustee Office is shown by the following figures : Number of Cases Accepted and Approximate Values No. 1908 three months to 31st March 63 1908-1909 twelve months 38l 1909-1910 twelve months « ^^ igio-191 1 twelve months 877 1911-1912 twelve months 105° 1912-1913 twelve months i 1364 1913-1914 twelve months iS73 1914-1915 twelve months ■• IS43 191S-1916 twelve months ,- I59S 1916-1917 twelve months * 1811 1917-1918 twelve months 1876 1918-1919 twelve months ■■ •. 17^7 Value t. 384,317 3,133,523 4,989,191 6,548,641 8,626,315 12,067,535 13,425,343 11,623,429 16,622,194 16,544,193 17,861,889 17,191,413 Total (eleven years three months to 31st March, 1919) . . 14522 129,017,983 ' Value £ Total number of cases accepted 14522 129,017,983 Deduct number of cases distributed i860 27,492,357 Number of cases now current 12662 101,525,626 The main office is in London. A branch office was opened on April 1st, 1914, at Manchester. Following the outbreak of the war, the -duty of acting as Custod- ian of Enemy Property for England and Wales was imposed upon the Public Trustee by the Trading with tht Enemy Act.^ The Act provides : — That all sums payable to enemies by way of interest, dividends, or share of profits, shall be paid over to the Custodian, to be held by him in such manner as His Majesty may by Order in Council direct. That firms with enemy partners, and companies with enemy shareholders, shall make to the Custodian a return showing the capital belonging to such enemy partners or shareholders. 1 Public Trustee Act, igo6 (6 Edw. vii, Ch. ss). 2 5 Geo. V Ch. 12. Trading with the Enemy Amendment Act and Proclamation of September 9, 1914. FUNCTIONS 19 That persons who hold, or manage property on account of enemies, shall make a return of the same to the Custodian. Subsequent acts greatly increased the scope and power given by the original legislation and included a system of voluntary returns, subsequently made compulsory, by which to ascertain as nearly as possible a comparative state of account as between Great Britain and each of the enemy countries and to obtain information which might be made available for creditors desiring to take joint action for the preservation of their respective interests. The total enemy property including debts as notified or paid proved to be greatly in excess of the British property, including debts, in enemy countries, as estimated on the basis of the voluntary registration.^ The total number of returns made to the Public Trustee as Custodian under the Trading with the Enemy Acts amounted on June 30, 1918, to approximately 89,000. In addition 'to the regular business of the Public Trustee Office, applications from 7,979 intending Testators, requesting that the Pub- lic Trustee should act as Executor or Trustee, disclose a possible future business of an estimated value of in 1,790,427. The success of the Public Trustee Office has not prevented the ex- ercise of trust fu-nctions in Great Britain by a number of the large banks, under amendments to their articles of association. There are now Public Trustees in New South Wales, Queensland (Public Curator), South Austraha and Tasmania. The assump- tion of trust functions by the Government in New Zealand, the Aus- tralian states and Great Britain indicates a radical line of develop- ment,^ but one which is not likely to become a permanent policy in the United States — in spite of the success of the Alien Property Custodian during the great war. 1 Eighth General Report of the Public Trustee. 1916.. p. 17. « " Trustee Companies," Robert C. Nesbitt, London. CHAPTER II ORGANIZING A TRUST COMPANY CHARTER AND CAPITAL Trust companies are organized under special acts of legislature, or under general corporation laws of the various states. Most of the older companies were organized under special acts, and as their business grew and developed, further special acts of legislature, in the form of supplements to the original charters, granted them addi- tional powers to provide for altered conditions.^ Although there is still no uniformity of practice, in many of the states trust companies are organized under general corporation laws. In the states where no such laws exist, trust companies are still in- corporated by special act of legislature ; and in a few states there is a choice of either method. Owing to the wide powers of trust companies, these organizations often prove profitable where a state or national bank could not suc- ceed. Before organization is decided upon, the promoters of a com- pany should satisfy themselves that enough business can be secured to make the institution a success. In eras of great commercial pros- perity, the possibilities of securing profitable business in dull times should be carefully weighed. The amount of capital having been fixed, a preliminary organization is effected and the necessary legal formalities are complied with. These formalities vary so much in the different states that it is impossible to give a general description of the process. The main features of the law in New York, Pennsyl- vania, Massachusetts, Illinois and California will here be referred to, as in these states the trust company idea has found its fullest develop- ment. The general trust company law of New York provides that seven or more persons may form such a company, They are required to 1 See Trust Company Law, by John H. Sears. 20 ORGANIZING A TRUST COMPANY 21 execute and acknowledge an organization certificate in duplicate set- ting forth the name, location, amount of capital and number of shares, name and residence of each incorporator and the term of existence, which may be perpetual, together with a declaration that each member of the corporation will accept the responsibility and faithfully discharge the duties of a director therein if elected. The minimum capital required varies from $100,000 in cities or towns having a population of not over 25,000, to $500,000 in cities and towns having a population of over 250,000. Notice of intention to organize must be advertised for four weeks and a copy sent to every other trust company doing business in the same city, at least fifteen days before filing the certificate. Proof that this requirement has been complied with must be filed, together with one of the organization certificates, with the state superintendent of banks, the other organi- zation certificate being filed with the clerk of the county in which the company proposes to do business, within sixty days after being acknowledged by the incorporators. The state superintendent of banks has full authority to refuse to authorize such a company to organize or commence business if in his judgment the new organiza- tion is not needed, or if those named in the certificate are not in his judgment fit persons to conduct such a business or to commEind the confidence of the community. This authority is apparently not a dead letter, -but seems frequently to have been exercised. When the superintendent is satisfied that the form of the certificate is correct and that all statutory requirements have been complied with, including the full payment in cash of the capital, a certificate is issued in triplicate by him authorizing the company to commence business, one of which certificates is delivered to the trust company and the others are filed with and recorded by the superintendent and the county clerk, respectively, together with the original certificates of organization previously filed with them. Before active business may be entered upon, a list of the stockholders with their addresses must be filed and the required deposit of securities must be made with the superintendent of banks. In Pennsylvania, the older trust companies were all incorporated by special acts of legislature. New organizations are chartered under the general corporation laws of the state. -The older companies, by 22 THE MODERN TRUST COMPANY accepting the provisions of the general corporation laws, are per- mitted to take advantage of the various pqwers conferred by these statutes. Under the general corporation act and its supplements a company may be formed by the voluntary association of three or more persons. The charter or articles of incorporation must be sub- scribed by two or more persons, at least 6ne of whom must be a citizen of Pennsylvania. This document must set forth the name of the corporation, the purpose for which it is formed, the place where its business is to be transacted, the term for which it is to exist, the nasnes and residences of the subscribers and the number of shares subscribed by each, the number of the directors and the names and residences of those who are chosen for the first year; also the amount of capital stock and the number and par value of the shares. It must further sfet forth that ten per cent, of the capital stock has been paid in cash to the treasurer of the intended corporation, and also state the name and address of such treasurer. It must be acknowledged before the recorder of deeds of the county in which its chief opera- tions are to be carried on or its principal office is located, or before a notary public of the commonwealth or a justice of the peace, and be accompanied by an affidavit as to -the truth of the statements con- tained in it. Notice of intention to apply for a charter must be advertised in the proper county for three weeks. The certificate of incorporation accompanied by proof of pttblication of such notice is then presented to the governor and a bonus of one-third of one per cent, of the amount of capital -stock the company is authorized to have, is paid to the state treasurer. It upon examination the governor finds the certificate of incorporation to be in proper form and in accordanice with the provisions of the law, he indorses his approval thereon and directs that letters patent be issued incorporat- ivtg the subscribers and their associates and s-uccessors into a cor- poration by the name chosen. The certificate is recorded in the office of the secretary of the commonwealth; and also in the office of the recorder of deeds in and for the county where the business is to be carried on. This completes the process of incorporation, but be- fore the various branches of business authorized can be commenced such corporation is required to have a paid-up capital of $125,000, an affidavit of which fact, made by the treasurer, must be filed with ORGANIZING A TRUST COMPANY 23 the secretary of the commonwealth, and th? names of the company's officers must be filed in the office of the auditor general.^ The Massachusetts Act of 1904 relative to the incorporation and to the reserve funds of trust companies provides that fifteen or more persons who associate themselves by an agreement in writing for the purpose of forming a trust company, may, upon compliance with the requirements set forth in the act, become such a corporation sub- ject to the general laws relating to such corporations. The agree- ment must state the name of the company, the purpose for which it is formed, its location, amount of capital stock, and number of shares. Each subscriber is required to state his address and the number of shares he takes. A notice of the intention to form such a trust company is given to a board of commissioners, and advertised for three weeks in the town in which it is proposed to establish the com- pany. Within thirty days after the first publication of the notice, application is made for a certificate that the public convenience and advantage will be promoted by the establishment of such a trust company. The board has power to refuse the certificate, in which case the application can be renewed after one year. The law fur- ther provides for the details connected with the preliminary organi- zation of the company and for submitting articles and records of organization. After approval, the articles are filed with the secre- tary of the commonwealth, who, upon payment of the requisite fee, issues a certificate of incorporation. The .capital stock cannot be less than $200,000, except in the smaller cities and towns, the shares to be $100 each. No stock can be issued until the par value of such shares has been actually paid in cash. After the entire stock has been issued, a list of the stockholders, with their addresses and holdings, is filed with the board of commissioners, who, after verifica- tion of the facts as reported and proof that all the legal formalities have been, complied with, issue a certificate authorizing the company to commence business. Massachusetts was the first state to require the trust companies to carry a fixed reserve to secure deposits. This reserve must equal 1 An act was passed on July ij, 1919, pamphlet law, p. 1032. whereby State Banks in Pennsylvania having a capital stock at least equal to the capital stock which Trust Companies are required to have, arc given rights similar to those exercised by Trust Companies, 24 THE MODERN TRUST COlSlPANY fifteen per cent, of the aggregate amount of deposits exclusive of savings and time deposits, except in Boston where the reserve must be twenty per cent. Two-fifths of the reserve must be in money a-nd currency, bonds of the Commonwealth of Massachusetts and United States bonds or certificates of indebtedness, at least one-half of such two-fifths being money and currency; the three-fifths re- mainder may be on deposit with trust companies in Boston author- ized to act as reserve agents, or with national banks in Massachu- setts, New York City, Philadelphia, Chicago or Albany, or with the Federal Reserve Bank of Boston, but not estceeding one-third of said remainder may be in bonds of the United States or the Common- wealth of Massachusetts, provided the money and currency, bonds of the Commonwealth of Massachusetts and bonds and certificates of indebtedness of the United States held by the company shall at all times equal five per cent, of all its time In.»«. »« CHU« » GCllL .« -—. : »l.u« HAM^ «...,.„«- i ' BALANCE •n mllud -klm » «nd p»«u. U 1 l_er~i.a/~L£j~ -\^r- Isj— iJ also perforated across the bottom. The first and last two columns and the bottom edge of the sheet are torn off before the statement is sent out. At the top of the sheet, in addition to the name and address of the depositor, are printed the key designations of the symbols used in connection with the individual items in the statement. The last two columns after having been torn from the sheets are retained by io8 THE MODERN TRUST COMPANY the bookkeepers until the final balances are copied on the new state- ment sheets for the following month. They are then destroyed. On the back of the statement sheet is a reconcilement form for the de- positor to fill out and prove his statement. The individual depositors' ledger and statement sheets are filed to- gether in loose-leaf binders in alphabetical .order. It is in conformity with the best practice to- make postings to ledger accounts directly from the checks and deposit slips. Only by using original papers wherever possible can the highest degree of accuracy be maintained. At intervals during the day, arranged according to the amount of work, the tellers pass the paid checks and deposit slips to the assist- ant bookkeepers. ^Each one arranges his items alphabetically, both deposit slips and checks together. The head bookkeepers then place them in their sorting trays, light wooden boxes lo" X I3i" with sides i" high and a division across the center. The unposted items are kept in one division, face up, and the posted items face down in the other. The box also prevents the checks and de- posit slips from being scattered. From the checks and deposit slips the bookkeeper posts to the proper account, entering all the checks or slips of a given depositor as a lump sum and changing the bal- ance. A thin blotter is then inserted at the page where the entry is made. This is done to facilitate finding the page, and also to prevent any item being overlooked when the balances are verified at the close of business or on the following morning. The bookkeeper, after posting all the items of the day, has com- pleted his work, unless it is deemed wise to have the interest slips changed and the ledger balances verified the same day. This can usually be left till the next morning, to occupy the time before the day's postings start. The assistant, however, is required to total the day's checks and deposits, which he has entered on adding machine lists, and these amounts must setde with the tellers' figures. The assistant bookkeepers also give the general -ledger bookkeeper a list showing the totals of the day's work, which are verified by compari- son with the items reported in the tellers' settlements. After the day's work has settled, the paying teller's assistant cuts the checks, BANKING DEPARTMENT 109 usually with a cancelling machine which punches the word " Paid " and also the date. The method of computing interest on depositors' accounts is closely allied to the ledger, the plan recommended being that of allowing interest on the daily balances and of using an interest slip arranged to show each depositor's daily balance for a period of six months. The interest slip is a sheet 9i"Xio^", with six vertical cash columns, each with thirty-one lines, and headed with the names of six months, to correspond with the semi-annual periods at which interest is allowed. Each deposit account has a separate slip. At the bottom of the slip is a space for the depositor's name and a space in which the interest allowed for each month is entered and the six items are totalled at the end of the period. A new set of slips is made out every six months. The slips are arranged alphabetically t« correspond with the order of the accounts in the ledger. They can be punched along the top margin and kept in any binder which permits of the sheets being readily inserted or removed. The bookkeepers begin the morning's work by changing the previous day's balances on the interest slips, while the assistants are engaged in sorting and filing the checks and deposit slips. Each bookkeeper on the interest slips of a ledger other than his owii makes the necessary changes in the last balance of each account affected. The new balance is entered on the line for the day of the month on which the change occurs. A blotter is inserted at each slip on which the balance has been changed. After all the changes are completed, the interest slips are returned to the bookkeeper to whose ledger they belong. The new balances are read off by the assistant bookkeeper, and if the postings in the ledger and the changes on the slips have been correctly made, the balances in both must agree. When the items differ, they are ex- amined and the necessary corrections made. By this system each balance is separately struck by two persons, and only in case of the same error being made by both can a mistake pass unnoticed. Interest on depositors' accounts is calculated for each, month, no BANKING DEPARTMENT III and the result is entered in a monthly interest summary at the bottom of the slip. The method used is to allow one day's interest on the total of daily balances for the month. If the balance in the account does not change during the month, it is multiplied by the number of days it remains unchanged, and the result, added to the balance on the first day, gives the total sum on which interest is to be allowed. The amount of interest is found by reference to a table described below. When the balance changes each day in the month, the balances are added, and interest is computed on the result. When the balance remains unchanged for any given time, it is multiplied by the number of days it remains stationary, and the result is pencilled on the interest slip just above the succeeding change in the balance. This procedure is repeated as often as required, and the total figures of both the changing balances and the multiplications covering the days when the account was un- changed, give the total to be used as the basis of the interest calculation. The interest table gives one day's interest at the rate allowed, on a basis of three hundred and sixty-five days to the year. The table appearing on page 112 shows interest at two per cent. When varying higher rates are occasionally allowed, the interest is first computed at two per cent. For three per cent, the result is increased one-half ; for four per cent, it is doubled. It is customary to credit interest to the depositor's account at a date somewhat later tha:n the period actually covered. This is done in order to give time to make the interest calculations. In large companies interest is usually credited in the various ledgers at different dates. The gen- eral practice is to allow interest semi-annually. The pass-book settlement system is being superseded by the monthly statement plan under which a state'ment^ showing the total daily deposits and checks paid, with the balances on the first and last days of the month, is sent with the cancelled checks by mail to the depositor. Sometimes a form of receipt acknowledging the correctness of the account rendered is enclosed together with a request that the depositor sign and return the acknowledgment. Whether the receipt is used or not, this plan is a much more effective 1 See page 107. IHSIVISVAl DBP08IT0RS' IRTEREST TABLS TWO PER CENT INTEREST ON DAILY BALANCES One Day Interest at a% per annum on basis of 365 days to a year a I to 91 .00 31,000 1.70 66,000 3.63 100,000 548 92 to 273 .01 32,000 ^•75 67,000 3-67 200,000 10.96 274 to 456 .02 33,000 i.8i 68,000 3-73 300,000 16.44 457 to 638 •03 34,000 1.86 69,000 378 400,000 21.92 639 to 821 .04 35,000 1.92 70,000 384 500,000 27.40 822 to 1,000 •05 36,000 1.97 71,000 3.89 600,000 32.88 2,000 .11 37,000 2.03 72,000 3-95 700,000 3836 3,000 .16 38,000 2.08 73,000 4,00 800,000 4384 4,000 ■22 39,000 2.14 74,000 4-05 900,000 4932 5,000 .27 40,000 2.19 75,000 4.1 1 1,000,000 54-79 6,000 •33 41,000 2.25 76,000 4.16 2,000,000 109.59 7,000 .38 42,000 2.30 77,000 4.22 3,000,000 164.38 8,000 •44 43,000 2.36 78,000 4.27 4,000,000 219.18 9,000 •49 44,000 2.41 79,000 4-33 5,000,000 27397 10,000 •55 45,000 2.47 80,000 4^38 6,000,000 328.77 11,000 .60 46,000 2.52 81,000 4.44 7,000,000 38356 12,000 .66 47,000 2.58 82,000 4.49 8,000,000 43836 13,000 •71 48,000 2.63 83,000 4-55 9,000,000 49315 14,000 •77 49,000 2.68 84,000 460 10,000,000 547-95 15,000 .82 50,000 2.74 85,000 4,66 20,000,000 1,095.89 16,000 .88 51,000 2.79 86,000 4.71 30,000,000 1,643.84 17,000 •93 52,000 2.85 87,000 4-77 40,000,000 2,191.78 18,000 •99 53,000 2.90 88,000 4.82 50,000,000 2,739-73 19,000 1.04 54,000 2.96 89,000 4.88 60,000,000 3,287.67 20,000 1. 10 55,000 301 90,000 4-93 70,000,000 3,835-62 21,000 i-iS 56,000 307 91,000 499 80,000,000 4,38356 22,000 1.21 57,000 3-12 92,000 504 90,000,000 4,931-51 23,000 1.26 58,000 318 93,000 5.10 100,000,000 5>479-45 24,000 132 59,000 323 94,000 5-15 25,000 137 60,000 329 9S,ooo 5'2I 26,000 1.42 61,000 3-34 96,000 5.26 27,000 1.48 62,000 340 97,000 532 28,000 1-53 63,000 3-45 98,000 537 29,000 IS9 64,000 3-51 99,000 542 30,000 1.64 65,000 3-56 100,000 5.48 BANKING DEPARTMENT II3 safeguard against error and fraud than the pass-book settlement can be. Furthermore, as a convenience to depositors it promotes good- will in favor of the b^ks and trust companies adopting it. Where pass books are used they should be settled frequently; if the accounts are active, at least once a month ; if inactive, after each interest period. Verification of the accounts by the depositors is one of the best safeguards against error. When the pass book is settled, the balance shown should be compa'red with the ledger bal- ance, and both should be initialled by the controller or some one outside the bookkeeping department. Perhaps at no point does a trust company run greater risk of loss by fraud than through its accounts with depositors. As a rule no acknowledgment is required from the depositor of the receipt of cancelled checks or of the correctness of the balance as shown in the settled pass book or statement rendered. When a trust company without question hands out a depositor's cancelled checks to any one who may call for them, it can hardly claim that due diligence has been exercised should the depositor suffer a loss. A rule requiring the delivery of settled pass books and cancelled checks to the depos- itor or his duly authorized representative only, should be strictly enforced. In addition, receipts should be taken in a form that will relieve the company from liability for errors not reported by the depositor within a given time.^ Cancelled checks are filed alphabetically and are returned to the depositor with the monthly statement or eSch time the pass book is settled, only the total of the paid checks being entered, while the separate items are listed on an adding machine slip which is returned with them. The deposit slips are generally filed alphabetically and for given periods. This method is on the whole more satisfactory than filing each day's slips together, as is sometimes .done. It is more often necessary to refer to all the slips of a given account than to a day's work. Special conditions often require modifications of a general system, and in caring for special sorts of accounts it is sometimes necessary iSee "Cancelled Bank Checks," by Charles W. Reihl, The Bankers' Magazine, Vol. LXIX, p. 920. "4 THE MODERN TRUST COMPANY to provide additional machinery. Thus, inactive accounts may be kept in a supplementary ledger, the totaUonly being carried as a single item in the main ledger. The object of this is to facilitate the taking off of trial balances. When a company is the depository of court funds, these accounts are sometimes carried in a special ledger. Such exceptions to a general rule or-system shotild, however, be as few as possible. When an overdraft is not discovered till the check has reached the bookkeeper, he at once — before posting — reports it to the paying teller. If the item is to be returned unpaid, the cut in the check is guaranteed by the teller or proper officer, and it is sent back to the bank which presented it. If the check is paid, the overdraft balance is posted in red in the ledger, and the depositor is notified. It is customary to have a printed form of overdraft notice, often in such type and color as to attract attention and warn the depositor of the seriousness of the offence. It is wise to have all overdrafts posted in a conspicuous place in the bookkeeping or tellers' room, to prevent their being overlooked or forgotten. No ledger entry should be permitted without the proper authority. This authority should be vested in some ofificer, but not in either the tellers or bookkeepers. This rule should also apply to so-called " star entries " or correcting entries, which are starred on both sides of the account in the ledger to indicate that the item is not to be shown in the pass-book settlement. Star entries are often used when an item taken as cash has been returned unpaid and charged against the depositor's account, but is afterward paid. In this case the original entries in the pass book and ledger stand, while the later ones charging the account, and again crediting the item, do not appear in the pass book or monthly statement. Deposit and charge slips used for these purposes are often printed with a large red star to indicate their nature. It is wise to carry in stock an assortment of check books varying in size from fifty to five hundred checks eac}!. Those of fifty checks each should be one to a page, attractively bound and of pocket size. The larger books should have two or thj-ee checks to the page. By having large quantities of checks printed at a time, the cost BANKING DEPARTMENT I15 can be kept down and they can be bound as needed. Safety paper, while more costly, affords a measure of protection and should be used. It is good policy to be liberal in the matter of printing the deposi- tor's name on his checks, and in having them numbered. The expense is slight, and the favor conferred is generally appreciated. When the depositor insists on having rf special form of check, he should be required to pay for it, unless the size of the account justifies the expenditure. Included among the standard checks should be a two or three signature form, for use in cases where more than one signature is required. Loose counter checks, with perforated stub attached to be torn off and retained by the depositor, are provided for the use of those who desire to withdraw funds in person, but who are without their own check books. The words " counter check " are printed across the face of the check. It is a growing custom among business houses to carry columns in their cash books for bank deposits and checks, thus dispensing with the use of the check-book stub. Expense can be saved by providing checks either loose or in pads for such depositors. Other business firms use their own forms of voucher or voucher check in the payment of their accounts. RESERVES " I was one of those who had the fallacious notion that ten or twenty per cent, cash in bank was just as good as in your vaults. I have had practical experience that in one hour — yes, in half an hour — disillusioned me of that notion. In half an hour there were 500 people at the doors of the institution that I have the honor to represent, demanding their money, and in another hour there were 5000. And that reserve which we have all been shooting at, which was a thousand miles away, was mighty poor satisfaction to the fellow who had his money in our institution."^ Plain words, these, and fearless, to be spoken by a successful trust company 1 Transactions Trust Company Section, American Bankers' Association, 1904. Il6 THE MODERN TRUST COMPANY president in a gathering of trust company representatives. And the fact that the panic was successfully averted does not lessen the force of his statement. A trust company which does not receive deposits, but confines itself to corporate and individual trust business, has small need of a cash reserve. Almost all trust companies, however, receive de- posits payable on demand, and do more or less general banking, and the question of reserves is as vital to them as to the banks. In order of availability in time of need, the reserves of a trust company may consist of cash on hand, cash on deposit elsewhere, paper eligible for rediscount, demand loans, and investment secu- rities. The great majority of everyday transactions are in credits, not money. So long as public confidence remains, the cash itself is not thought of — this confidence lost, a panic results, and nothing but the actual cash will suffice. The danger of a trust company's depending entirely on its bal- ances carried elsewhere is that panics are apt to occur in times of money stringency, when the banks themselves may find it difficult to meet sudden calls for large amounts. " The experience of 1893 sufficiently proved the system of redepositing bank reserves in other banks, subject to demand, to be, as Professor Amasa Walker de- scribed it many years ago, the most explosive element in American banking." ^ Some financial institutions carry deposit accounts in other cities as an offset to local conditions. Another expedient is to open a special gold account with a national bank, the deposit being returnable on demand and in kind. A small return is received on the amount of the. deposit, and the gold may be considered as part of the reserve of both bank and trust company. This plan, too, has its weakness in time of panic. If a cash reserve is a necessity for institutions in the national banking system, — and this fact is universally admitted, — there seems to be every reason why the trust companies should be required to carry fixed reserves in their own vaults, not so large as the national banks, because their accounts are far less active, but commensurate with safety and sound banking principles. * The states in which the 1 Alexander D. Noyes, Political Science Quarterly, V.ol. XVI, pp. 248-261. BANKING DEPARTMENT 117 trust companies have reached the highest development are taking independent action toward this end. The 'present trend of legisla- tion is to require a minimum reserve, and such laws should in the end benefit the trust companies and make for financial stability. Where trust companies have been admitted to membership in clearing house associations, definite reserve requirements must be observed. The conservative attitude of the clearing house associa- tions in requiring ample reserves has deterred many trust companies from applying for admission. Each year, however, sees more trust companies joining these associations, to the manifest advantage of all concerned. The reserve problem which is so serious for trust companies in- dependently organized is simplified for those institutions which are members of the Federal Reserve system. The Federal Reserve Act prescribes that trust companies and state banks which be- come members shall maintain reserves equal in amount to those required of national banks — 7% of demand deposits in " country " institutions, 10% in reserve cities and 13% in central reserve cities, vrith 3% of " time deposits " (deposits payable after 30 days' notice) in all classes of banks. As shown in Chapter III, the first duty of a member bank is to establish and maintafn a reserve balance with the Reserve Bank of its district. This it does either by depositing cash or by discounting eligible paper. It then looks to the Reserve Bank to provide it with cash in case of sudden demand and its " reserve policy " becomes simply that of holding enough rediscount- able paper to serve as a basis of accommodation in time of need. CHAPTER VI BANKING DEPARTMENT (Continued). LOANS AND THEIR RECORDS The profitable employment of deposits and other idle funds is an important phase of the trust company's business. If interest is allowed on deposits, it is particularly necessary that the company should be receiving an adequate return. As deposits can be with- drawn at will, investments which have a long period to run can be used only to a limited extent. The larger proportion of such funds must be in short-term investments, either acceptances, ^ bonds Hear- ing maturity or loans secured by collateral. The president and board of directors usually make general rules as to the class of obligation which is taken. It is, of course, not possible for these officers to pass on each individual transaction. Subject to their rulings, the treasurer is responsible for the making of loans. In large companies even this officer may have to delegate his authority. In special cases, when good loans of a t3J|)e not usually accepted are offered, he often finds it wise to secure the approval of his superiors before making a final decision. The loan clerk is intrusted with the details involved in the making and payment of loans, changes in collateral, and the care of the securities themselves. The position is an exceedingly responsible one, and demands speed, accuracy, and judgment, as well as famil- iarity -with the fluctuations of the market. It is customary to make loans either " payable on demand " or for a period of from four to six months, although occasionally the time is extended to a year or more. It is the part of wisdom to make the period moderately short, as large: withdrawals of deposits may at any time necessitate the calling in of loans. Sometimes the company itself must become a borrower in order to meet large 1 See page 379. Commercial paper. 118 BANKING DEPARTMENT 1 19 payments when money is scarce and a sudden contraction of its loans might have disastrous results.^ The use of clearing house certificates has even been found necessary in times of severe financial stringency. In New York a demand loan is understood to mean just what the term expresses, — an obligation payable without notice, accord- ing to the will of either lender or borrower, which not only can but quite probably will be called, and when this happens payment must be instantly made. In other parts of the country, the right to call demand loans is less frequently exercised. Indeed, certain classes of borrowers seem to consider that a demand loan gives them the privilege of payment at will, but denies the corresponding right to the lender. Where this is the case, a higher rate should always be charged than for a strictly call loan, as the obligation is really a time contract for an indeterminate period. When loans are to be called, the borrower should be given as long notice as possible ; for when funds are scarce, even the strong- est house may find that it takes time to get the required sum. Judgment should be used in deciding which loans to call, and the amount needed should be divided pro rata among a number of bor- rowers rather than obtained by calling in the entire loans of a few. The practice of discounting paper varies not only among diflFerent trust companies but in various sections of the country. Where trust companies act under a general banking law giving wide powers and enabling them to transact a commercial banking business, dis- counting of unsecured paper is frequent. In other states it is not permitted, although practically the same result is often obtained through the purchase from a third party of notes which have already been discounted. This difference is recognized by the laws of cer- tain states. In loaning on collateral, the two important considerations are the marketability of the collateral and the name of the maker of the note. Loans should never be made to irresponsible people or to strangers. The danger of loss from loaning on forged or stolen securities is practically eliminated when the borrower's name as well as his collateral is of value. On the other hand, the borrower should 1 See page 152. Kediscounting. 120 THE MODERN TRUST COMPANY remember that when he borrows and the note includes a clause permitting rehypothecation, as it usually dbes, he surrenders his se- curities to the lender, who may dispose of them without the knowl- edge of the trusting client. It is therefore as much to the advantage of the borrower to deal with a thoroughly responsible lender as it is to the trust company to have only reputable names on its loan ledger. The most desirable borrowers are usually bankers, brokers, and those engaged in railroad, commercial, or other legitimate en- terprises. The speculator should be handled with care, and his line of loans should never be allowed to exceed an amount for which he is undoubtedly good. In times of inflation, particularly, future bad losses can very easily be contracted by loaning too largely to individuals who have not sufficient capital ,to finance the operations for which they have become responsible. Loans to officers or directors are to be avoided, and when made should be of moderate amounts and so amply protected that there can be no criticism from any source. Some of the worst failures of financial institutions have been caused by loaning, directly or indirectly, to those connected with the company. The laws of some states require all such loans to be reported to the State Banking Department, and specify an aynount which shall not be exceeded. The law usually provides that such loans mjust not be greater than a given percentage of the capital stock. In the selection of collateral, care should be taken to see that it either has intrinsic value or else that it can be readily sold. For collateral purposes it is not necessary to know so precisely the intrinsic value of the security as when purchasing outright for per- manent investment. Marketability is the chief factor, as in case of default the collateral would be sold at once. A security that has a broad market is the best type of collateral. Thus thousands of shares of a good railroad stock can generally be sold without mate- rially affecting the price, while the forced Sale of issues which are little known may cause the price to break many points in transactions involving but a small number of shares. It is a great help in making loans to have fixed rules as to the character of the collateral, and the amount o'f a given security which the company is willing to carry at any one time. Speculative securi- BANKING DEPARTMENT 121 ties can be taken with safety only when the margin is sufficient to admit of a sudden great fall in price. Securities of this sort should be marked at a low figure, and too large an fimount of any one issue should not be accepted. There may even be danger in loaning too great an amount on inactive stocks which have undoubted value but a very limited market. In case of default on a demand loan so secured, the holder, in order to prevent loss, may be forced to buy in the collateral and to hold it for an indefinite period as an invest- ment. In the same way, loans with mortgages on real estate as collateral security must be classed among the investments not readily convertible into cash in time of panic or sudden need. In this country, railroad corporations doing an interstate business are required by law to make fuller reports than are corporations doing an industrial or manufacturing business. The earnings of a railroad, too, are not likely to fluctuate as violently as those of an industrial concern. Hence railroad securities form one of the most desirable classes of collateral. The securities of recently formed corporations should be loaned on to a very limited extent until the business is firmly established and has given undoubted proof of its profitable nature. Unfortunately, the declaration of dividends does not always mean that they have actually been earned. A cer- tain conservative trust company that declined to loan on any but dividend-paying stocks, not only limited itself very greatly in the choice of collateral, but had adopted a poor test of value, as the bursting of more than one iridescent bubble has proved. Except when the security is of undoubted value, mixed collateral should be preferred to large amounts of a single kind. The loaning officer should be in close touch with market values, and have every facility for securing prompt and accurate informa- tion.^ A stock ticker should be within easy reach, and be supple- mented by " inside " information, for stock .quotations by themselves may prove anything but safe guides. Th^ operations of a bull or bear pool may give the market a fictitious appearance, and a " wash sale " may fix the quotation in order to regulate loaning values, when to find a real purchaser the limit would have to be dropped many points. 1 See page 217. Statistical department. 122 THE MODERN TRUST COMPANY In times of panic and violent fluctations in price, the situation should be closely followed and additional collateral be called for as necessary. If the borrower is financially sQiind, his margin can be allowed to drop considerably without fear of loss. With small borrowers and those who have exhausted their supply of available collateral, prompt and decisive measures must be adopted. To take the first loss is often in the end best for all concerned. Delay in selling out a weak loan through consideration for the borrower may be misplaced kindness. Sentiment is out of place in a falling market, The amount of margin which is required varies with the sort of collateral. Thus, it is perfectly safe to loan very nearly the full market value of government bonds, and of most state and municipal securities. First mortgage railroad bonds can also be taken at a higher valuation than stock and other securities readily marketable, perhaps, but of less certain value. If the collateral is composed entirely of speculative stocks, a sudden break in the market may in a few hours — and , before there is an opportunity to sell — turn a comfortable margin into an actual loss. In figuring margins it is important to bear in mind that in times of contraction in values, when securities are selling at a low level, a margin may be safe which in times of inflation and prosperity, when high records are being made, would be entirely insufficient to assure safety. In the former case, prices will probably stay within a moderately narrow range, while in the latter a sudden large shrifikage may occur. The usual test applied to a collateral loan is that the value of the securities must have a margin equal to 20 per cent, above the amount of the loan. If the collateral consists of United States, state or municipal bonds the margin required may be as low as 10 per cent. In the case of securities which fluctuate widely or are of questionable value, a " loan value " is arbitrarily fixed by the lender and margins are calculated on the basis of this figure instead of the current market price. When the borrower is thoroughly responsi- ble the usual requirement is simply 20 ppr cent, margin on good mixed collateral. In loaning it is usual to have a form oi note which gives the lender every possible advantage over the borrower, and leaves no BANKING DEPARTMENT I23 loophole by which the unscrupulous may attempt to avoid payment. The form of note here given embodies the provisions which, with varied wording, are found in the notes used by trust companies. The note should always be carefully filled in so that there may be no question at a later date as to any of the figures or descriptions which appear on the obligation. The loan clerk, before the money is paid out, makes a careful examination of the note, the collaterals, and the powers of attorney accompanying securities not payable to bearer. With stock exchange collaterals it is essential that the securities and power of attorney should be in such shape as to constitute a "good delivery," so that in case of necessity they can be readily sold. A state bank examiner in visiting a newly organized trust company was astonished to find that there was not a single power of attorney with any of the loans. On questioning the treas- urer he found that this officer fondly imagined that the note gave all the required powers, and had not at all considered the possible need of making a transfer in case of sale. After the situation had been explained, the treasurer offered to feve his counsel, who, it seems, had approved his method of loaning, prepar^ " some sort of a paper " to accompany the loans. He was not a little surprised to hear that such a paper formed an important part of the equipment of every bank and broker's office, and th^it he could obtain from his stationer an irrevocable power of attorney probably quite as effective as any document his counsel could devise. The bookkeeping methods of the loan department should be as simple as possible. The following system furnishes an easy and accurate method and involves no unnecessary labor. The machinery of the loan department consists of the loani ledgers, a collateral record, and a collateral index. The ledgers and collateral records should be of the loose-leaf type. Many companies combine the loan ledger and collateral record. It seems better, however, especially in the larger companies, to separate them, as the recording of loans and interest and of collateral changes are two entirely distinct operations. A bound accession book is a valuable aid and should also be used. This book contains columns for the date,^ name of the borrower, kind of loan, rate of interest, description of collateral delivered or o» < O u H P H W Q O 1 ^ I o J3 8 H =w= c-a 3 S " 5 S> S U 3 "O 5 "u.STJ'fl Ills ■s rt S " 5*T3 6 u ■s a ° " S B oa _J3 " « 2 o s-c.a v.S a V S-S2 = s " " 2 «•** « *j ** . n I J u"B if a S! »^ Si! 5 SkSoS-SB'O^ M o s-S g S oJfi « E-S-Sg-B^li^ SB - ■= 6 S?" S.S^ g 1-3 B .S ' — ' c4 4J u va I W U — i" . M •S6B>it!=8mMC'«r. a ** *. C *i 2 rt*S Q ii 5" 3 s S M »•= a n "- " S _ B s >>!;■£ g a-- i „-g o.- o g «^; •s:3* 5 as-K.isgs.is." ...„.„ ^ C4 4J u ,E « "1 o ■8 » " 124 LOAN ACCESSION BOOK DATE LOAS TO Du Sib 11 (iECURITY DRLITEItED 8W Bond! Price j 1 ■ SECl/RJTy DBF031TED ENTERED £tunia«d Centrollw Tilus .Shu«> Boad* DmenpUol PriM T,du. Mbunl RHord tudai IMuia Indu LM ■J)Bt« as. FoUq ISTEKEST Ihn, To Days On irfnns of- . IlBtei Tnteretri T.ATME.VT3 | | DrtU C. B. .-^^ 11 • 1 "^ 1 126 BANKING DEPARTMENT 127 the rate of interest up or down, the bookkeeper takes the demand loan ledger and in the interest section he enters the date of the change, the new rate, and the amount of the loan. At the same time an assistant fills in the rate of interest and date on the notifica- tion slip which is sent the borrower. By having a set of envelopes already addressed, and the borrowers' names written on the slips, it is possible to change the records and get out notices very ex- peditiously. Interest bills should be clearly and simpl;^ drawn^ and should give the figures in such a way that the borrower can easily verify them. The practice in some trust companies of treating each note separ- ately, instead of considering the whole loan as a running account, is confusing and adds enormously to the work of computing interest. The charges on the interest bill correspond exactly to the figures in the demand loan ledger, and the same data that appear in the ledger should be given on the bill. In the case of time loans, a notice is sent -the borrower shortly before the maturity of the loan, showing the amount of both interest and principal; in the case of commercial paper, the note having already been discounted, the face amount alone is shown. For time loans, a modification of the demand loan sheet is used. As each loan runs for a definite period, there is, except in the case of an advance payment or overdue loan, but one interest calculation. When it is desired to show the interest accrued upon each loan, an entry is made at the end of each month charging the interest accrued for that month. The total of these items then forms the basis for the entry in the general ledger accounts. The columns, which run the whole length of -the sheet, show the date when the loan was made, the date when due, the number of days, the rate and amount of the interest, the cash-book folio, and the principal of the loans. The aggregate of the open items in the 'principal column on all the time loan sheets is in balance with the time loan account in the general ledger. The remaining columns are devoted to the payments received, showing the date, cash-book folio, amount of interest, and finally the principal paid. Both sides of the sheets are ruled, and current and transfer binders are used as in the case of the demand loans. 128 THE MODERN TRUST COMPANY For commercial paper, a slightly differeflt ruling is used, as the discount is deducted when the paper is bought, instead of interest being paid at the maturity of the loan as is generally the case with time loans. The form is also varied slightly, depending on whether TIME LOANS ' Made Due Da^a BaJinte J. C.B, I rest pouo i cans PAYMENTS II Date 1 *?^{{; Interest II L oaos " 1 I 1 the law permits the company to discount directly, or requires the paper to be bought after it is discounted, and accompanied by a bill of sale. It the latter case, the sheet — arranged somewhat similarly to the time-loan sheet — would provide a record for the date when bought, from whom bought, due, principal, payments, showing date BANKING DEPARTMENT .I29 and amount, followed by a section for " discount " in which col- umns are provided for date, days, rate, accVued, and payments. The sheets in the. collateral record are arranged alphabetically, according to the borrowers' names, with a cross index, if necessary, arranged as to due dates of time loans and bills receivable. The heading of the sheet shows the name of the borrower, and, in pencil, the total amount of his loans. The remainder of the sheet and its other side are devoted to an itemized description of the collat- eral. Columns are provided for the number of shares, the par value of bonds, the description of the security, the rate, and the total loan value. The last two can be noted in pencil as they are frequently altered. The stocks should be listed alphabetically when the loan is made, and space should be le'ft for additional items; the bonds, similarly listed, should follow. The collateral index or line ledger is a cross index of the collateral record, arranged as to securities, and is kept so that the total amount of each kind of collateral may be quickly ascertained, both to pre- vent taking too large a quantity of any given security and, in case of a drop in price, to locate rapidly the various loans afifected. This record can be kept on cards or sheets : on the latter the totals can be added more quickly ; the cards have the advantage of containing no " dead " matter. When cards are used, a blue card describing the security comes first and is followed by white cards giving the name of each borrower in alphabetical order and the amount. Where sheets are used, the description of the security is given, followed by the list of borrowers and the amount of the security with each loan. The arrangetpent in both cases is primarily as to the security, and secondly as to the borrower. Whenever substitutions of collateral are made, receipts are taken on a " change slip " which shows the description and loan value of both the collateral withdrawn and that deposited in its place, with a statement that the new securities are subject to all the provisions under which the original collateral was deposited. The arrangement of the notes and collaterals is often considered a matter of trifling importance, and they get little care after they are once securely locked within the vault. The usual practice is to put both note and collateral in an envelope, or to tie bulky securities COLLATERAL RECORD LOANS TO DEMANDS TIME! , TOTALS Shares Bonds Seovirity Price Market Value T T T ■* 130 SUBSTITUTION OF COLLATERAL Loan $ Date .Maturity. Received from The Modern Trust Company the following Securities : @ Loan Value $ @ @ @ <® :® @ And deposited in lieu thereof, subject to the same terms ;;ollateral originally pledged: @ Total $ and conditions as $ @ @ @ @ (ol (n) Total $ 1 131 132 THE MODERN TRUST COMPANY in a bundle. It is more satisfactory to keep both notes and collat- erals flat in portfolios. These should be rriade of two pieces of tar board, loj" x 15^", and should be held together by two loose straps of webbing, fastened with ordinary buckles. Manila sheets a trifle smaller than the outer boards are used to separate the loans of the various borrowers in each portfolio. The closets in the vaults devoted to the loans should have shelves about 4|" apart, on each of which a portfolio rests. On the out- side of the closet door should be large letters showing the loans contained in the closet, all of which are arranged alphabetically. The portfolios are given consecutive numbers, and inside the closet door is an index list of the alphabetical divisions in each portfolio. Within the portfolio, each sheet bears on the right-hand lower corner the name of the borrower, and, as it is in its alphabetical place, the loan can be quickly found. Each borrower has an envelope, on which appear his name, the total amount of his demand loans and time loans, and a list of his collaterals. Within this envelope the various notes are kept. When payments on account are made, either a note of corresponding amount is cancelled or the credit is indorsed on one of the notes. Below the envelope, flat and arranged alphabetically according to the name of the security, come the certificates of stock, then reor- ganization and other receipts, and at the bottom, bonds, divided into coupon and registered, also alphabetically arranged. All the col- lateral belonging to a borrower should be kept together. When figuring margins, the total amount of the loans, irrespective of whether they are demand or time loans, and the total value of the borrower's collateral are considered, because under the terms of the notes the collateral pledged with any one note is equally applicable to all other outstanding loans. By keeping the portfolios moderately small and having a few extra ones in each closet, the system can be made to adjust itself easily to the changes which are constantly occurrihg. BANKING DEPARTMENT I33 ' MONEY RATE The general public understands, more or less clearly, that the prices of -most commodities are fixed by conditions of supply and demand, influenced by competition and various other factors. When the commodity is money, however, more mystery seems to attach to the matter, and when the rate of interest to be charged on a loan is quoted with promptness, the individual borrower is often puzzled to know how the proper figure was decided on. Speaking broadly, the laws of supply and demand govern the price of money. In England, the bank rate, fixed by the Bank of England, influences the market figures. When the Bank of England finds its reserve, which is practically the reserve of the nation, being drawn on too heavily, it raises the rate at which it is willing to loan, and this has a tendency to lessen the demands on it. On the other hand, when the supply of idle money accumulates too rapidly, the rate is lowered in order to attract borrowers. In this country the Federal Reserve Banks under supervision of the Federal Reserve Board exercise the basic function of establish- ing rates of discount. These rates -are proposed by the twelve re- serve banks independently and the Board weekly considers these recommendations, harmonizes and authorizes or disapproves them. These " rates of rediscount " fix the cost to member banks of addi- tional funds and -hence determine commercial rates which may at times be the rediscount rates plus bankers*^ commission or endorse- ment fee. The rates vary according to the maturity and character of paper. In the following discount s'heet of the Reserve system the standard classification is set forth. It will be observed, however, that there are no rates for " call " money or for collateral stock loans, these being unknown to the Fed- eral Reserve system. The rates for these classes of loans are indi- rectly dependent upon the policy of Federal Reserve Banks although not direct derivatives of their rates. The rate for money lent upon collateral whether time or call is determined by the large financial institutions in the money centres, between which there is often a community of interest, if no closer relation. It may be possible to 134 THE MODERN TRUST CaMPANY DISCOUNT RATES: Discount rates approved by the Federal Reserve' Board up to Dec. 31. IQIQ- Federal Reserve Bank. Discounted bills (including member banks' is-day cof lateral notes) maturioe within 90 days, secured by — Treasury certifi- cates of indebt- edness bearing interest at — 4'/i per cent. 4% per cent. Liberty bonds and Victory notes Trade accept- ances maturing within go days.l Discounted bills, secured other- wise than by Government war obligations, also unsecured, ma- turing within — 90 days (includ- ing member banks' col- lateral notes). 2 91 to 180 days (agricul- tural and live- stock paper). Boston New York ... Philadelphia . Cleveland . .-. . Richmond . . . Atlanta Chicago ...... St. Louis Minneapolis Kansas City . . Dallas San Francisco 4I 4i 4* «4i 4i 4i 44 44 4i 4i 4i 4* 4i 4i 4i 4* 4* 4J 4i 4i 4i 4i 4i 44 4i- 4i 4f 4S 4i 4i 4f 4i '4l S s 4i 4i 4i 4J 4i 4i 4i 4i 4i 4i 5 S 4i 4i 4i 4f 4i 4* 4I 4i Al Mi s 5 4J s s s si 5 S4 S4 5J 54 Si Si S4 l^Kate also applies to bankers' acceptances discounted by the New York and Cleveland banks. 2 Rate on paper secured by War Finance Corporation bonds, i per cent, higher. 3 Rate of 4^ per cent, on customers' paper. 4 Rate of 5 per cent, for maturities 6i to 90 days. Note. — Acceptances purchased in open market, minimum rate 4 per cent. hold a fictitious rate for some time through a common agreement on the part of the chief lenders, but the price will always adjust itself in the end. Where, as in New York, funds are offered com- petitively on the stock exchange, it is supply and demand that fixes the rate. New York, being the chief money centre of the United States, regulates in a general way the price of money in all the other financial centres. When there is a good demand in New York, rates advance and idle funds are attracted from the interior. When rates fall, money is withdrawn. The rates for call and time loans which are published in the newspapers often show considerable variations at different places : these figures are for brokers' loans, and the rates charged private BANKING DEPARTMENT 135 individuals are usually somewhat higher according to the amount and character of the loan. Individual bbrrowers sometimes feel that they are unfairly treated in being charged more than the pub- lished ruling rate for money, when, as a matter of fact, they would be quite unwilling to borrow on the " quick call " terms which are acceptable to the brokers, who have better facilities for securing funds at short notice. The prevailing rate is changed either by the lenders one by one advancing or lowering the figures, or by their acting in concert and changing the rate simultaneously. The rate of interest on a time loan is fixed by agreement when the loan is made. In the case of call loans, when the rate is advanced the lenders notify the various borrowers of the change. When it is lowered, the lender either sends out notices in the same way or waits for the borrowers to request a reduction in rate. One method of maintaining a high rate in any particular place is to send surplus funds elsewhere, often to be loaned out at a much lower figure. Such a practice is sure to react in the long run and injure the commercial standing of the com- munity. So large a proportion of business is done on borrowed money that the merchant or manufacturer who can procure funds most cheaply has a decided advantage over his competitors who are forced to pay more, and the short-sighted policy of withdrawing funds from the home community inevitably tends to drive business elsewhere. INVESTMENTS ^ A trust company is known by the securities it buys. Part of its capital is usually invested in the real estate, building, and equipment necessary for the transaction of the business. The remainder of the capital and the surplus form a permanent fund which can be invested in a very different class of securities from those in which deposits and other moneys liable to withdrawal at short notice are invested. Being liable for the acts of the company, the capital and surplus constitute a guarantee of corporate respon- sibility. The Federal Reserve Board requires that fiduciary operations 1 See page 360, 136 THE MODERN TRUST COMPANY carried on by members of the Federal Reserve system shall com- ply with the laws regarding investments in the state in which the member is located. Where there is no state law the rules appli- cable to national banks control also in the case of state members. Some states regulate by charter provisions or general" statute the investment of a trust company's own funds. The restriction most often found, which applies to other corporations as well as to trust companies, is one limiting the amount Of real estate which can be held. Trust companies usually are allowed to buy in real estate under foreclosure of mortgages or other obligations in order to avoid loss, but are required to dispose of such holdings within a limited period. This restriction is sometimes evaded by having an individual take title and give a mortgage for the full consideration or cost of the property. New York, Ohio, and a few other states specify in general statutes the character of trust company investments. Most of the states require reports of condition, including lists of invest- ments, to be made to the state department having supervision. The publication of these reports is a valuable safeguard, and often discourages the purchase of questionable securities. What the character of a trust company's investments should be, depends largely on the kind of business it transacts. The trust company which does principally a commercial banking or corporate trust business can take risks entirely unjustifiable for a company which executes chiefly individual trusts. In the transaction of a commercial banking business it is not unusual to make unsecured loans and to underwrite, in whole or in part, issues of corporate securities. Large profits have been made in this way and corre- sponding risks have been taken. Where a trust company makes a specialty of the care of estates, the situation is very different. A wealthy man about to appoint a corporate executor or trustee will want to know how the company invests its own funds. The laws generally do not require bonds, as in the case of individuals acting in fiduciary capacities. It is therefore essential that the company's own affairs should be con- ducted with extreme caution, and the character of its investments be strictly scrutinized. Government, state, municipal, and standard railroad securities, BANKING DEPARTMENT I37 and well-secured mortgages, are suitable for investment purposes. The securities of industrial corporations, being more liable to fluctuate in value, should only be held when of undoubted worth. ■Local conditions also have a bearing on the question of investments, and justify the purchase of different sorts of securities in different parts of the country. An interest should never be taken in underwriting syndicates unless the intrinsic value of the securities has already been demon- strated. Membership in a syndicate to purchase and market an issue of municipal or state bonds, or the underwriting of an issue of bonds of a dividend-paying railroad, may be entirely proper if the company is ready to hold the securities underwritten as perma- nent investments in case of failure to dispose of them. It is never right to assume obligations on account of securities of questionable value, or of companies which have not demonstrated their earning powers. It might be folly to buy a certain security selling far below its face value, and yet become the part of wisdom to invest in that same security after its permanent value has been proven — even if the price has gone up many points in the interval. If an interest is regularly taken in underwritings, it is not always -possible to refuse an undesirable offering, lest the source of supply should be- cut off. The trust companies which never take an in- terest in underwriting syndicates, and there are such, undoubtedly miss opportunities for making profits, but may be compensated by avoiding losses from depreciated and unmarketable investments, and by the deserved reputation and increased business they gain thereby. Securities which the company would hesitate to have known were in its vaults should under no circumstances be pur- chased. The knowledge that a trust company of good standing has bought a block of bonds will often sell an entire issue. The brokers, knowing well that no more forcible argument can be made to indi- vidual customers, are always anxious to place part of their offerings in strong hands, in order to dispose of the remainder — usually at advanced figures. In this way a trust company assumes a respon- sibility which reaches far beyond its own dustomers. A trust com- pany cannot afford to be discredited in the eyes of the public, and errors in judgment may lead not only tp direct losses but to dimin- 138 THE MODERN TRUST COMPANY ished prestige and a consequent withdrawal of business. The com- pany may make an actual profit by the purchase and later sale of questionable securities, and yet incur an intangible loss far greater, for those who failed to sell at the right time will not soon forget through whose example they were persuaded to buy. The best se- curities are none too good for a trust company's assets. The general ledger contains accounts showing the total of each class of investment, while auxiliary ledgers for stocks, bonds, real estate, etc., give the details of the various securities. A form of investment ledger, either bound or loose-leaf, which is suitable for all sorts of securities, has a space at the head of each page for a description of the security and shows the rate of interest, when payable, basis upon which purchased, principal due, with blank lines for other data. Below follows a space for principal transac- tions, with columns for date, par value, rate, amount paid, balances showing both par and book value, date, par value, rate, and amount received. This ruling occupies but part of the page, the lower part being devoted to interest items. Under " interest," columns headed " accrued " and " payments " are three times repeated, and each is subdivided into " date " and " amount." The relative space devoted to principal transactions and interest items is regulated by the character of the investment. For perma- nent investments the principal section is made about half the length of the interest section, and as the latter has three sets of columns, there are six times as many lines for interest items as for principal transactions. When this form of ledger is used for temporary in- vestments, the page is divided in half, thus giving three times as many lines to interest as to principal. In buying and selling securities, it is important to distinguish between principal and accrued interest, and to charge or credit them to their proper accounts. If the accrued interest is not considered, the books may seem to show a profit, where in reality there has been a loss. The three following rules have been used satisfactorily to show the true condition as to investments arid the income therefrom : Compute interest on the issue each month at the income rate or basis on which the bonds have been purchased. For example : the interest, if the bonds have been purchased on — r > = = = 1 < li 1 1 1 — — a 1 i ■3 >■ P3 V 1 1 " 1 1 1 1 s 1 1 — :: ^ 1 — , — ' ' 1 ■ — : i^ tj s •«» B ^^ tk « u ^ * H "S -< S — «: Q -^ ^ •S a o >!j ' Oh o H - rn Q U Pi isi H -I i-» o H 1 -< ? S — ~ — < , d ^ 9 O B « -d 1 , ... — — - h at a ^ P g •s ^ . g ■■ As Indoraar | ^___ Aa cuuantor f^ No accsunU or noCci raccUabli hava baan Mid, dlacountad «r uilcnad with •urliulominint «r ntrula* •»•#■ •• ialloma Accounu ind Nat€t _PayMt. It 4Pr ar* paai dti« sMu- amount and flrcumataneH ^— _———... -, — .— ,— — Durlnc last Aacal rear current llablltUee were at k awz* Imam U ->.nni_, —...M-i-j— ■ ■»! ■ ■ - i—i and at » imtwiM f| y ^f* Moftga flte and Bandh 8t«t* due date* «f nortcaCM and' •n a-bal aaaeta s ""■ State due date of bonda and do what aaaeta a Uen_ _Are moricaccs or bondi a Hen on anr currmi If any other Ucn* an asaeia, etato amount and elreum> Reeervea end Bcprectatlen. Slate erhal prvvlalon !■ fUdo Wc hereby ccrtUy that the [orcgaint figuret arc taken from the books of this company and that tKc/ «Alf the Itate- ntent* camimed on both lides of lhi» ihcei arc true aiKl pvc a correct showing of the financial conditioa of the fompsny. <;igH>5j ih;« 'T'y "' . iii> _ -Name— B»- 174 BOBBOWEB'S STATEMENT, PAGE 3 In whfti fUti inMfpontedi. |( coinp«nr hu ftnr •ubaldlartes or branch oRIcm ■(&(• lo«fl9q itnd hQW kcnunti mn h«nill«d. What la practice ol eompany In rcxard la trad* dlMOunta? - Ar* boolts kUdKc4 tr • c«nifl«dj Olvfl dftte ot lut- Mannet of Derfowin( (Suie w4ieth Real estate and buildings owned by Co. ^^^.^ Other assets consisting of _. ._•._ _ * - .-..•M...fi.. Total , I-. Total assets, « , , , « .$.... Any past due indebtedness, and if any, how much! $ „..„ _ — If any of the above accoiuits are pledged, state the amount, $ .^.~^.... ^ „ Are there ouy existing liens on personal property not mentioned above T it so^ whatT.- CoDtingeot liabiUtics upon bills of exchange, endorsements, guarantees, -etc., $.,.„..«-.,. Annual business amounts to $ _ _ _...... Bank with .„,... .„.„„«.„.-_ _.-,...-, — Do you keep books of account of the businessV._ ,..^ „ _ ^ _ If so. what books T._„. « - _. ... _ _ «..,.- ,„ :. „_* -....„._ _ Le the statement of value of stock on band made upon the basis of an inventory actually takenT And if bo, on what What in your opinion Is the tola! amount of your assets and of your liabilities as they are at thc'date of signing this statement! Total assets, $ „ :._ _. Total liabilities. $.._._ ___ ... FiHE Protection: Slate its general nature — public fire department, sprinkler system, fire extinguishers, night watch- Insi;rancC; On Merchandise, $..-_. ..„»,.-^„ ... ^^ ^ _ On BuUdings, $ ^.«.. , . ,,■.. ^ _,. Did you ever suffer a fire lossT..^— ..^^.o* ^ Tf so, wherg and ffhenT „... „.„»„* _-,...„.„.„.^.._. Did fire origioatt on your prcitiisesl ,- , .. i~^^ .....;&»«.-.._ _..... ..e^^.. Do you carry employer's liability insurancel _..u..,...«.„...b_, „^.^_, ^..„ OrPlCERS. Preside nt^...^^to....,—.- «-.. _^^^ »^-...,--.™,„Vice-President,.... , Secretary,. .,. — —.,.-,«-« ^„„.Trcasurpr, -^-,^„.„.._ . ,.. .Qen'l Muiager,.. ^'^. Names of Directors s»..*.^- ^^.ja-r^.. .--_^— .. .«^^_^. „..,.. J _.,..., „ Date ot upiine lUtemeDt..*.^ ., x.^ l^-c— t 180 IMPORTANT Kindly give the mnes o ( a few houses from whom you malie yom' largest pnrdiases. NAME STREET ABDRESS Cmr AND STATE AMOUNT crwrmc $ . OTHER REFERENCE :- i8i l82 THE MODERN TRUST COMPANY especially for them and whose function it is to gather data in much the same way as the financial agencies, although it is more special, technical, and in some cases perhaps more efficient. Such investi- gators work in the particular industries which are closest to the concern under investigation or among those houses which are in business relations with it. They thus get data that might otherwise be inaccessible and, their reports being semi-confidential, they are able to express themselves with greater freedom than the commer- cial agencies. They run some danger of misinformation or of gathering information which is tainted with a special motive, and the student of credit must make allowance for such vitiating factors. COOPERATIVE AGENCIES Cooperative exchange of credit information has been developed perhaps to a higher degree in the United States than elsewhere through associations whose function it is to deal with questions of common interest in industry. Such associations frequently have a credit department and its duty is that of disseminating data as to the reliability of buyers. Thus, for example, an association of clothiers may arrange to interchange all information concerning certain buyers, so that it will not be' necessary for any house to learn through unfortunate experience that specified buyers are not to be trusted. It is not always possible to get this kind of infor- mation. When banks are able to make connections with such coop- erative agencies or trade sources, they have found them very valu- able because the data obtained have generally been sifted by the experience of a variety of concerns. A banker or lender of funds may have friendly relations with other banks, whereby a cooperative interchange of information is effected in much the same way. In this case a bank which had had difficulty in its relations with given individuals or had sustained losses therefrom would explain, upon request, what its experience had been. All such information must be taken with some grain of salt, to allow for personal or special difficulties of one kind or another. CREDITS AND CREDIT DEPARTMENT 183 USE OF CREDIT INFORMATION When the credit department has obtained reports from all these diiferent sources, it is very desirable to have the data carefully codified so as to make them of the greatest value to those who are charged with the duty of passing upon loans. The executive officers cannot spend much time in detailed examination, but the results must be placed before them in detailed form. This is one of the most important functions of the credit department. A plan which has been found desirable is that of first carefully sorting the infor- mation by names and establishing a folder for each name. In this folder will be put in successive order the customer's statement, the reports of financial agencies, and other data, including newspaper clippings, statements in trade journals, and= the like. This creates a systematic file of information. It may be bound together by any of the usual office devices, preference being given to those which hold the file securely in place and do not permit the removal of in- dividual sheets. This file, however, should be the second section in the general folder. The first section preceding it should be a classification of credit data in compact, boiled-down form by para- graphs, leaving places for the addition of facts as the file grows larger and the concern develops from year to year. The executive officer, when he sends for the folder, thus finds it easy to obtain a condensed statement of what he needs to know, while if certain data arrest his attention he refers to the second section of the file and informs himself more at length. This file will be incomplete if it is not carefully " cross-referenced." Take, for instance, the firm of Jones and Smith : — A very good file may be built up for the firm, but in another file there may be i personal record of the transactions of Jones, the senior member of the firm. Data derived from the analysis of Jones' operations should be transferred to and made a part of the Jones and Smith file, or at least a cross-refer- ence, making access and identification easy, should lead to the file which contains a detailed account of the dealings of Jones. The same will be true of his partner. Smith; indeed, the Jones and Smith file will be incomplete unless it is brought up to date by T^"T ■■■ ■ ^ ■^~ " B,:| n » ;i O ""^ 1 ?° : (fi J> N 5S i4' - — . 0) Ts u u 19 U fl It < i gi a ffl z ~ >< . if 01 u= it ~ 3 J J < c ^ 10 i^ 5 IS 1° =1 11 X F u 3 T« E >- CD U 111 *1 3 D 4 < z DC 4 s D H : J J! « a 4 s It = n? 2 OWN N FOR. E REC'Bl Z fi i S E9 ^ < II - a £ a i 9 < U hi o o < z IS ^^ i u X " M . is" (A ■ *>- 1 2" ^i ' ji " O 5 JS 55 t- 'Q -i"^ 01 ■ a y , ... a c « Z ^S "ri Z 2 > < S « o 0. o 5 -^ »[ o <^ )= ^ 1 S U s < ! ! 1 i 8 3 O ^ < i : X £ ] 1 1 X u t- a u U O h 3 S 3 ■s z 9 < S < s 1 5 < O Z 0| ^ ;: 184 CREDITS AND CREDIT DEPARTMENT 185 incorporating the facts with reference to the two partners in the business. The accompanying average balance card is used for the purpose of presenting in compact form some of the data assembled in detail in the credit file as well as in the other records of the bank. The back of the card is left blank for miscellaneous informa- tion except at the right hand side where a column headed " Interest " and divided to show date and rate appears. KEEPING TRACK OF LIABILITIES There is another function that is sometimes allotted to the credit department and sometimes carried on elsewhere — that of keeping track of the liabilities, both direct and indirect, of borrowers. The credit files should show all of the direct liabilities of the concern to which it relates, but it does not always follow that the most careful credit analysis will furnish information as to indirect liabilities. The credit department should seek to obtain all possible data showing how far the borrower has incurred indirect responsibilities, whether through agreements to take back goods, or to permit the cancellation of orders, or as an endorser of the paper of others. If the borrower has outstanding trade acceptances or other paper and at the same time is borrowing on single name paper, it is very important to show exactly what the condition would be in case of failure. Each class of outstanding, liabilities might have a different status at law and the holders of one might therefore be preferred as creditors in com- parison with others. A satisfactory credit file will give information upon this topic. When the bank is a large one, the file may be sup- plemented by a liability ledger showing the position of the borrower in greater detail. GENERAL STUDY OF CREDIT The credit department which relies entirely upon the data derived from the individual files of the borrowers is not in a very satisfactory position. Time and again it has been shown that the individual borrower may be solvent and sound so far as he himself is con- cerned, but that circumstances over which he can have no control l86 THE MODERN TRUST COMPANY may wreck him at any time. If, for example, he is operating in a line of trade in which very great overexpansion has taken place and in which a check on demand may occur at any time, thus rendering his outstanding claims uncollectible, his own position is potentially very much weakened and the bank cannot afford to do for him nearly as much as it otherwise would. Only through obtaining regular reports of conditions in the trade in which the borrower operates, is the banker enabled to judge whether there is or is not a good field for the borrower's operations. This would seem to be the duty of the borrower himself, but the fact must be recognized that in business life men are seldom cool-headed or conservative judges of their own future. One of the most important functions of the banker is that of forming an outsider's judgment — friendly but critical, on the character of the operations which are in progress in a given trade. If the banker does not form his judgment care- fully he will be in grave danger of making loans on security at con- stantly advancing prices until the peak of the movement is reached and when the downward trend begins he finds himself holding secur- ity of problematical worth. A well organized credit department will keep in touch with trade developments and check them up in such a way as to enjoin upon the bank's executive officers the neces- sity for caution in placing funds at the disposal of those who would greatly increase the scope of their business enterprises. The modern credit department also seeks to inform itself upon the general credit situation in the country at large. In order to do so it is necessary to have recourse to many sources of information and to undertake more or less scientific analysis of business con- ditions as affecting credits. There are various so-called " indexes " of business conditions which may serve as a guide to the banker and from which he may draw his own conclusion as to whether the time is ripe for extension of credit or whether, even to the solvent, the amount of credit extended should be kept to a minimum. These indexes may be grouped roughly as follows : Production Consumption Exchange CREDITS AND CREDIT DEPARTMENT 187 Under the head of production indexes are included all data relating to the supply and movement of commodities. For example, during the " crop-moving season " it is important to banks in the agricultural states and elsewhere to have some clear idea of the output of agricultural staples. This is furnished in great detail by the United States Department of Agriculture, and the reports which it supplies for states and even for counties can be supplemented by local data showing not only the production but the amounts realized in given districts for specified crops, and the movement of products. In a similar way, industrial enterprises now furnish a considerable amount of accurate information. One of the best examples of a business index of this kind is the car movement on the railways which gives a very satisfactory clue to the volume and direction of traffic. Another is found in the so-called " unfilled orders " of large concerns such as the United States Steel Corporation. These show the vigor with which production is being prosecuted and the extent of demand. Under the head of consumption indexes may be classed all those which have to do with the rate and scope of destruction or con- sumption of commodities. For example, rfeports concerning retail trade are designed to show whether the volume of business is greater or smaller than in preceding years and what effect it has upon the reserve stock of goods on the shelves. The effort is also made to ascertain by suitable figures whether consumption is proceeding at a more rapid rate than production, and hence whether the interme- diate stock or reserve of goods which is already in each trade is being diminished or not. Exchange indexes are based on clearing house figures, the volume of transfers of deposits on the books of banks, and the like. There are many variations of such business indexes, some of them being issued by commercial concerns for their own purposes of profit- making, others being of a semi-public nature and prepared and dis- tributed merely for the purpose of guiding the public. Not a few financial houses issue reports of business conditions and exercise considerable care in the compilation of data showing the growth of trade, its direction and the extent to which obligations are being met. From a careful study of such indexes it is possible to form an idea of the general condition of business and consequently the general i88 THE MODERN TRUST COMPANY scope properly to be given to credit. The credit department will endeavor to supervise such studies much more carefully than would be done by any general investigator. Knowing the conditions in the several trades to which the bank's customers belong, it will be prepared to enforce payment or refuse renewals or curtail credit whenever such action is necessary, either in its own defense or in that of its customers. CHAPTER IX TAX DEPARTMENT INTRODUCTION Not many years ago it was common in this country to class death and taxes together as eventualities which were unavoidable but for practical every-day purposes were treated as minor or even negligible factors. Direct taxes were imposed upon real estate and to some extent upon franchises, business licenses, occupations, and various other items but the sums involved were moderate, the assessment was prompt and certain in amount, and payment was final. For federal purposes indirect taxation was long the principal source of revenue and the tariff was the chief financial subject of political disputes. A deep-seated aversion persisted in the United States against direct taxes upon incomes and upon the sale of ar- ticles of necessity. For a few years during and shortly after the Civil War a moderate income tax was resorted to, but it was not a scientific piece of legislation, and at the earliest opportunity it was abolished. Some of the states endeavored at about the same time to impose an income tax, but little success attended any of these efforts. From 1872 until 1894 there was no federal income tax, and the act of the latter year was soon declared unconstitutional by the Supreme Court. FEDERAL INCOME TAX LAWS Increasing governmental expenditures having reached a volume which could not be met out of the customs duties and other available revenues. Congress passed in 1909 a corporation excise tax law which was in effect a tax on the income of corporations. This tax was limited to a rate of one per cent, and continued until 191 3 when, after the adoption of the Sixteenth Amendment to the Constitution, the general income tax law of 1913 was enacted by Congress. This 189 1 90 ' THE MODERN TRUST COMPANY law continued the tax of one per cent, on corporations and imposed moderate taxes upon individual incomes. It was amended in 1916, at which time the rates were slightly increased, but it was not until the Act of October 3, 1917, that this country knew the meaning of really heavy individual income taxes, and for the first time a grad- uated tax, called the excess profits tax, was imposed upon corpora- tions. This law has been followed by the Revenue Act of 19 18, which substantially increased the rates of tax on both individual and corporate incomes. The Act of 19 17 also provided for an inheritance tax and for numerous sales and other special taxes, and these provisions of the law have been continued and extended under the Revenue Act of 1918. By way of illustrating the change that has been effected within a very short period, an individual receiving an income of $100,000 in 1912 paid no part of it in federal income tax. In 191 5 the federal income tax upon that amount of taxable income amounted to some $2,500, while in 1918 a taxpayer receiving the same income would be taxed approximately $35,000, the exact amount being dependent upon certain exemptions, etc., which vary in individual cases. For the latter year the normal tax was six per cent, upon the first $4,000 in excess of certain credits allowed, and twelve per cent, upon the income in excess of this $4,000 (beginning January i, 1919, these rates were reduced to four per cent, and eight per cent, respectively), while the surtaxes ranged from one per cent, upon the first $1,000 of income above $5,000, to sixty-five per cent, upon income in excess of $1,000,000. Except as to the one modification indicated above these high rates continue until they are changed by future legislation. Similarly, corporate income which was subject to a tax of one per cent, in 1912 and in 1915, became in 1918 subject to a possible levy of 82.4 per cent, of the net income for the year in excess of the so-called war profits credit. While this maximum rate is actually reached in but few cases, it is common knowledge that taxes taking fifty, sixty, and even seventy per cent, of the net income are frequent. As already indicated, other taxes upon sales and inheritances, and various forms of excise taxes have also been in force. TAX DEPARTMENT ipi THE WAR AND TAXATION The change in the tax situation in the United States is one of the most striking phenomena connected with the war, and if it were a mere fleeting incident men might marvel and pass on. Serious students of the fiscal problems of the government are, how- ever, agreed that direct taxation at heavy rates must last for many years and, while relief may in time be expected from the present burdens, there will not be a return to anything approaching the low level of pre-war taxes. Perhaps no other problem with which the country is now faced demands more intense and intelligent consideration. The heavy burdens imposed by the war and its re- sulting indebtedness can be met if tax laws are based upon scien- tific design and are administered with even-handed justice. Such administration must be free from narrow-minded preconceptions, able and willing to give full consideration to all the facts in each particular case and to make and apply an intelligent interpretation of the many difficult points of law. Not only have high taxes come to stay, but their application must be made .more universal. At the present time, although the income tax applies to individual incomes in excess of $i,ooo in the case of persons without family obligations, and in excess of $2,000 in the case of each individual at the head of a family, it is obvious that there is touch evasion, and this evasion must be overcome by constant pressure through efficient ad- ministrative enforcement and by the education of the public con- science. TRUST COMPANY'S INTEREST IN TAX MATTERS A trust company is interested in taxation matters first as a taxpayer, secondly as the representative of the trust estates in its charge, and thirdly in a voluntary capacity as a tax advisor. With respect to the trust company's position as a taxpayer little needs to be said, as its problems are relatively simple compared with those in many other lines of business. Both its income and invested capi- tal are comparatively easy of determination, and the difficult prob- 192 THE MODERN TRUST COMPANY lems connected with inventories, depreciation, depletion, intangible assets, and other items common to industrial and mercantile con- cerns, seldom if ever arise. It is, of course, important that a trust company should be meticulously careful in respect of its own tax obligations. Acting in a trust relation for others, it may reason- ably be expected to exercise a greater degfee of diligence -and care in making its tax return and meeting its payments than would be expected of most other business corporations. While the trust com- pany's own return will naturally receive careful examination at the hands of the officers of the company, its preparation should, in the first instance, be lodged with the general tax department hereinafter discussed. In this way the company will secure for itself the fullest advantage of the knowledge of the law, regulations, treasury de- cisions, and other rulings, that it has been able to gather for the use of the estates for which it is trustee. INCOME TAX RETURNS Income tax returns are required from trust estates as well as from individuals, and a trust company acting in the capacity of trus- tee, executor, etc., must file returns for the trust accounts in its charge. Because of the complexities of the law and the frequent changes that are made in the statutes by Congress, no attempt can here be made to discuss in detail the requirements which must be met by the taxpayers. The Bureau of Internal Revenue has pre- pared extended regulations and these are supplemented from time to time by treasury decisions and other rulings. There are also several good text-books on the income tax law and procedure.^ All of these, with the regulations relating to lother forms of taxation which are likely to be imposed upon a trust company or any of its trust accounts, are available and copies should, of course, be found in every trust company. To deal intelligently and efficiently with tax problems each trust company should establish a tax department, and some one officer or employee should be made directly responsible for its proper functioning. In a small trust company with few trust accounts 1 See Bibliography, p. 511. TAX DEPARTMENT 193 the work of the tax department may require during most of the year only a small amount of time and almost nothing in the way of a staff, but in a large, active trust company tax matters are of suf- ficient importance to warrant the selection of a thoroughly com- petent man to take charge of the tax department, and a staff of clerks and stenographers is indispensable. While this department should have charge of all tax matters other than local real estate taxes, which will, perhaps, be more conveniently handled in the real estate department, the taxes upon incomes arid inheritances are those which will principally engage its attention. Not only are federal taxes imposed upon incomes, but several states have now imposed income taxes, and while these state laws aim in general to follow the federal law, there are necessary variations which must be observed in the preparation of the returns and in the payment of the tax. The regulations of the Bureau of Internal Revenue and of the states which have thus far adopted income tax laws require not only a return of the net taxable income, but that this return be made in considerable detail. Thus the federal law requires each taxpayer to show his total income received from each of such sources as the following : Income from business or professions Income from salaries, wages, commissions, etc. Income from partnerships, personal service corporations, es- tates, and trusts Profits from sale of real estate, securities and other property Income from rents and royalties Interest on corporation bonds containing a tax free covenant clause Interest on_ bonds, mortgages, etc. (other than those contain- ing a tax free covenant clause), interest on bank deposits and dividends on stock of foreign corporations Dividends on stock of domestic corporations Taxable interest on bonds and other obligations of the United States. This last item must be further subdivided to show both the amount of interest from and the amount of principal in each Liberty Loan 194 THE MODERN TRUST COMPANY and other Government obligation issued since September I, 1917- From the total income certain deductions are allowed, such as interest, taxes (other than federal income taxes or estate or inheritance taxes), losses by fire, storm, etc., contributions in certain cases to an amount not in excess of 15% of the taxable net income, repairs and depreciation of property other than property devoted to personal use, etc. The foregoing indicates in general the sort of analysis that must be made of the income of each taxpayer, and iecause of the extent of the classification it seems unavoidable that supplementary records be utilized. It is important that this analysis of income be made currently during the year in order, first, that an estimate may be made as to the amount of the accruing tax so that a sum sufficient to meet it may be withheld from distribution; and secondly, that a congestion of work may be avoided during the comparatively short time intervening between the close of the year and the date upon which tax returns are required. Perhaps as convenient a method as any is to use columnar sheets headed with the number and name of each trust or other taxpayer's account and, beginning at the left, showing columns for the date and total or gross amount of income, and other columns extending to the right containing headings for each classification of income, including non-taxable income, if any. These records will be auxiliary to the individual trust ledger, de- scribed on page 348, and the total of the " Gross Income " column should agree with the gross credit column in the income section of that ledger. To the right of the income columns other columns should be provided for charges against the trust or other account which constitute deductions for income purposes. This analysis should be written up monthly so that at the end' of the year the figures necessary for making a tax return will be practically complete. The analysis record can preferably be written up by the individual trust ledger bookkeepers, but the analysis should be carefully examined and approved by the tax department, while the work of making up the returns should be lodged in that department rather than imposed upon the individual trust ledger bookkeeping staff. On account of the frequent changes in the federal tax law and of the varying requirements of individual state laws, it is not deemed TAX DEPARTMENT 195 practicable to present herein a copy of a form, but it is believed that the above outline will be sufficient to enable forms to be drawn to suit the needs of individual trust companies. Where a trust company has charge of a going business the accounts of such business should be 'kept in a manner that will clearly reflect the income and will show the true invested capital.. In such case these records should be a part of the bookkeeping system of the business rather than of the trust company. WITHHOLDING Under the earlier income tax laws provision was made for with- holding tax upon many classes of income, but under the present law withholding is limited almost entirely to income that is being paid from American sources to non-residents where, if the tax were not withheld at the source, the Government would be without eflEec- tive means of collection. Where the trust company acts as trustee for non-residents it will, of course, make up the returns and pay the tax in its representative capacity, and withholding provisions are, therefore, relatively unimportant from the standpoint of the trust department. Withholding of tax at the source is required in the case of fixed or determined income payable to a non-resident alien individual or to a foreign corporation not engaged in trade or busi- ness within the United States, and in the case of interest payments on bonds containing a tax free covenant. Through the medium of ownership certificates and the general reduction in the field of tax withholding this problem has been so simplified that the banking de- partment, in which most of the items belong, has little difficulty in meeting the requirements of the law. The subject is fully dealt with in the regulations of the Internal Revenue Bureau and reference should be made thereto for further information. INHERITANCE TAXES The federal and state inheritance taxes also present problems which frequently are of a perplexing nature, and tliese should be referred to the. tax department. Fortunately in this field there is to be found a large body of adjudicated cases which go far to remove 196 THE MODERN TRUST CQMPANY uncertainty as to inheritance tax liability. Eventually a similar body of authority will be built up through income tax litigation, but in the meantime taxpayers and the Government are compelled to work as best they may under exceedingly difficult statutes. WORK OF TAX DEPARTMENT Owing to the variet^ and intricacy of the questions which must be solved in connection with taxation, it is not practicable to do more than indicate rather than describe the work of a tax depart- ment. The first essential is to appoint at the head of it some one who will thoroughly familiarize himself with the law and regulations of the federal government and of the individual state in which the trust company is located if an income tax law is there in force. While, as a matter of course, difficult questions of tax law should be sub- mitted to counsel, there is in every active trust company a large mass of transactions constantly occurring which involve tax prob- lems of complexity, arising out of exemptions, credits, and the taxability of particular items of income, so that a thorough ac- quaintance with the law and regulations is essential if the Govern- ment is to secure the tax to which it is entitled and taxpayers are to avoid making overpayments through mistakes or misunderstandings. The third relation of a trust company to the tax laws is that of an advisor to depositors and clients. Since the enactment of the Revenud Act of 1917 in particular, trust companies and banks have performed a patriotic and useful service in assisting and advising taxpayers in the preparation of their returns. This work naturally falls mainly in the period between January I and March 15, although a smaller volume of work is required thrcmghout the year by tax- payers having fiscal years other than the calendar year and by tax- payers who have secured extensions of time for filing returns, or upon whom the Government has levied additional assessments. The problems arising in this advisory work are likely to be more difficult than most of the problems arising in conneption with the trust com- pany's own work, because the application! of a graduated income tax to corporations requires the use of a new factor, that of invested capital, and the correct computation of this factor is frequently, if TAX DEPARTMENT 197 not usually, more difficult than the computation of the income itself. These questions relate in part to law, but in large part they relate to accounting, economics, and business practice. Great care, there- fore, requires to be exercised in advising taxpayers on questions within this field, and where a trust company is performing a gra- tuitous service it should in all doubtful cases refer its client to legal or other counsel. Helpful advice is usually appreciated by one who comes to a trust company for gratuitous service, but the fact that the advice was acquired without cost is likely to intensify rather than to moderate a taxpayer's resentment towards the trust company if he later finds he has been led into a mistake resulting in an overpayment of tax, or that the advisor has omitted to point out to him a possible claim which he might make for relief. The trust company, therefore, cannot afford to incur the risk of making such mistakes, and it should be careful to confine its gratuitous advice to the more simple problems concerning which it can speak with assurance. CHAPTER X OPERATING COSTS INTRODUCTION In commercial and manufacturing business much attention has of late years been given to what is called '' Cost Accounting." This term, when correctly used, refers to a system of accounting usually parallel to the financial books, the purpose of which is to analyze or segregate the costs of various processes or of various units of work. Such a system, in order to be accurate, must be conducted upon the familiar principles of doiible entry and involves the maintenance of a- Cost Ledger, which is kept in balance with controlling accounts in the financial books. Much, and in some cases, all, of the data required in cost accounting can be obtained from the usual financial books, and the Cost .Ledger can be written up from them; but the system is at its best when organized with an entirely independent set of records which furnish the cost infor- mation. It is a moot question how far cost accounting can advantageously be carried and where to draw the line between useful or desirable information, and red tape or detail valuable iti itself but not yielding results commensurate with the expense involved. In banking, cost accounting in the proper sense of the term is but little employed; the precise scope of cost accounting in banking and the appropriate methods are indeed still to be settled. Many of the operations of banking do not lend themselves to strict cost accounting methods, and are not likely to be much helped or better understood through cost accounting save when a plan is very carefully developed to meet the special banking requirements. It is at the same time true that there are few businesses in which careful analysis and apportion- ment of expenses and earnings will not largely repay the labor involved and that banking is, in this regard, no exception. The largest and best managed of American banking institutions have, in 198 OPERATING COSTS 199 recent years, recognized this fact, and there has been an increasingly widespread effort to secure analytical data bearing upon costs. These methods of " Costing " have tended to be primarily statis- tical. This means that in banking it has not been found advisable to attempt the introduction of account books which could be balanced ; and that the best results are attained by cOst analysis rather than by cost accounting — the records and results having no relation whatever to the financial books but consisting of statistical studies designed to show the expense and profitableness of given depart- ments. In applying cost analysis to banking or financial institutions the first step is, therefore, to effect a satisfactory grouping or classifi- cation of the principal divisions of the work. Such a grouping must be made in any event for the sake of administrative efficiency, but in cost analysis it is usually advisable to carry it much further for theoretical purposes than would be needful for administrative purposes only. In making cost analyses of strictly banking opera- tions, the basic problem is that of recognizing, or discriminating from one another, the chief operations or processes. Inasmuch as most banking operations are of a standard unvarying character, — differing thus from manufacturing, where the problem is to dis- cover the cost of a given " job " or contract and the elements of such cost — the cost analysis problem is frequently that of ascertaining an average or representative cost of performing a given kind of service or operation. TRUST COMPANY COSTS An institution performing a full trust company business may be divided into the following departments : Banking Department- Corporate Trust Department Individual Trust Department Safe Deposit Department Savings Fund Department Insurance Depa^ment Controller's Department. 200 THE MODERN TRUST COMPANY The fundamental problem of cost analysis in such a company is not difificult. It is easy to keep track of the salaries paid in each of these departments since their work is essentially more or less independent. The only serious problem would be the apportion- ment among the several departments of " dverhead " expenses, i.e., rent, heat, light, and executive salaries. Theoretically, the distri- bution of such overhead would probably be made in accordance with the total volume of work performed or " turnover " of the several departments. This might be quite a difficult way of making the division. It would be hard to compare the. turnover or volume of business of the individual trust department with that of the bank- ing department, and the requirements of the two in the way of equipment, office space, etc., might be entirely dififerent. For the purpose of apportioning ordinary " plant costs " such as office rent, furniture and equipment, it is usually possible to make some distri- bution based upon floor space occupied. The distribution of execu- tive salaries may properly be made upon a basis corresponding to the actual salary roll of the employees directly engaged in each depart- ment. This would be upon the theory that the amount paid for services in each department corresponds roughly to the proportion of time, energy and thought required of the executive headship of the institution. After this general subdivision of expense, the problem of cost analysis is necessarily different in each department. In the safe deposit department for example, it is comparatively easy to estimate the investment in each deposit box according to size, and apportion to each box, upon the basis of an assumed total, the proportion which it should bear of the running expense in the department. In the individual trust department somewhat the same plan may be followed except that here the problem becomes a good deal more complex. A standard schedule of charges for trust company serv- ice has been prepared and made public by a committee of the American Bankers Association.^ This schedule indicates approxi- mately what the average experience of trust companies has been in regard to the cost of and the reasonable profit for each of the standard operations involved in caring for individual and other 1 See page 353. OPERATING COSTS. 201 trusts. The distribution of expenses can be compared with the standard scale of charges thus established sO as to ascertain whether the cost of performing a given service does or does not exceed a pro- portionate relation to other costs. While the difficulty of assigning trust department expenses is thus partly eliminated, the method is, of course, inexact. The large and well-equipped institution will necessarily maintain its own cost analysis. This will provide for a careful assignment of expenses to each operation or service with a view to finding out exactly what the expense involved may be considered to be. This kind of analysis will differ very greatly from company to company, according to the form of the invest- ments and the amount of work that has to be done in caring for them. For a consideration of the general principles of cost analysis, the banking department may be selected. This is undoubtedly the most difficult department of the trust company for such analysis, and its study is of special interest because it presents a problem which is common to both the trust company and the bank. BANKING COSTS In the banking department the problem of cost analysis becomes highly technical. A line of division must obviously first be drawn between the business derived from domestic and that derived from foreign operations. Turning then to the receipts and expenses re- sulting from domestic operations the business may be classified somewhat as follows : Receiving and paying tellers' department Collection department Transit department Credit department Clearing-house department Bookkeeping department. This division is more or less artificial. In some banks it may be less elaborate, while in others it may be vastly more so. The more closely the sub-division is carried out, the easier, on the ■ EXPENSE LEDGER ■ OCBITS cm DISCBIPirON « NT WUfllES EQUIPMEHT entcrtaimiugI tmveling 1 1 L III j ^ ^ III 1 1 t 1 |. ! 1 1 1 1 III ~~^ _i 1 1 1 1 - . 1 _J 202 THE MODERN TRUST COMPANY CREDITS MOUL 1 L ten. ST»TIOHLH» POSTICC caieiT nrpoit'i 1 ■ I IB 1 II ■" ID 1 L 1 1 u III III 1 203 204 THE MODERN TRUST COMPANY whole, will be the making of a satisfactory cost analysis, but in any case the principle will be the same. Selecting any one of these departments for further study, the first problem in costing is to ascertain the standard items of expense customarily incurred and to keep careful account of them. This is a matter of experience simply. Such expenses may be reduced to a comparatively small number of headings. The accompanying de- partmental expense ledger is required monthly in a large bank from each department head. The aggregate of report slips thus made out by the several departments should represent the entire expenses of the institution with the exception of general executive or administrative expenses, such as the salaries of the higher officersi rentals, etc. These gen- eral items may be divided upon some regular basis among the expense sheets of the several departments. Such an apportion- ment is frequently made on the basis of actual current expenses. If, for instance, the salary of the president is $i5,ocxj, while the current outlays shown on the expense sheet of one department, let us say, represent io% of the total of all, it may be fair to assign to that department 10% of $15,000 as its shaTe of the president's salary, or for the monthly sheet %2 thereof, or $125. Rentals may be appor- tioned in a similar way or may be assigned on the basis of space used. Taxes and like items will probably best be subdivided in proportion to other current expenses, unless they are imposed in such a way (e. g., stamp taxes) that they can be directly assigned to given operations. When, however, the most careful analysis has been made along the lines just explained, the result will not be of great intrinsic value except for comparative purposes. If the bank has carefully preserved its records for a series of years it will be able to ascer- tain in which directions the cost of operation is growing most rapidly and from such information can deduce reasons for the advance. Or it may have in its possession records of other institutions and from these it may be able to draw serviceable comparisons. As most bank- ing institutions are able to standardize salaries in accordance with the situation in the community, it should be true that the cost of conducting, for example, the bookkeeping department of a bank will OPERATING COSTS 205 correspond in a rough general way with costs in other banks where the volume of business is about the same. This kind of information has a certain negative value, but it does not go far unless a much more thoroughgoing use is made of the data. Such further use of the data is the chief object of cost analysis in banking. Banking, as already explained, is a continuous business which does not give opportunity for ascertaining the cost of particular pieces of work, but it is possible to find out the cost of a standard process. Wijth such knowledge in hand, it becomes possible to analyze dealings with individual customers in order to reach conclusions as to their remunerativeness. Each- customer's account may not involve the use of the entire machinery of the bank, but many will do so, while practically all will use several departments. The pre- liminary problem therefore is that of ascertaining the unit or stand- ard costs of each department. This is feasible because in banking operations such unit or standard costs have little relation to the amount of the transaction as represented by -the size of checks or loans but are a question of volume or number. For instance, it costs as much to receive, enter, clear and cancel a check for $l as a check for $i,ooo, and while there are various special costs (such as collection fees, etc.) which may vary in proportion to the face of a check or the amount of an operation, they are secondary costs and must be regarded as additional to the underlying or basic costs which are incurred on all transactions in proportion to volume. Having ascertained the department expenses in the way already de- scribed, the expenses for any given department may be divided by the volume of business and a standard rate or cost obtained which is applicable to each unit. If, for instance, the gross expenses of the collection department for a month are, say, $10,000, the number of items put through being, say, 2,000,000,, the cost is evidently % cent per item. In the same way, if the process of discounting has involved a cost in operating the loan and discount department of, say, $10,000 for a given month, and if, say, 10,000 ^pieces of paper have been discounted, the cost per piece may be reckoned as $1. It is practicable to subdivide much more closely the number of indi- vidual costs applying to the various banking operations and to ascer- tain the standard cost of certification, making credit inquiries, etc. CO z z cc <: Ll l—H 1 f- n u Z Q b J p - --- v\ IJ____=„_ 3f T " "" ;■• ! , ? . S ! i ! S!j ■ i s 1 ; -.2 ll ll i i s ^ 1 I 1 i jl 1 u ' •& 1 „ „ r*^ ._ ..,.. = = _--= i -j I M.«; P° u 1 . _i_ If ij S*: i s r?f " " " _|_ h •J 1 ih i|i HI III f i ^ ^ - 5___ pcj 1 , ^ 1" ■ " li S ! L; y lis SS= l=> '' 11^ ill Ui i| ,, |l niliiliiilijlii iiJiljliii ilili. 2 .-__2_ __.___...-J.... 207 2o8 THE MODERN TRUST COMPANY The lai^er the bank, and the more complex its organization, the more minute such standard expense anal3(sis may be made. The analysis may be extended to cover any desired number of banking processes, the method being as before simply that of apportioning to each department or sub-department the expense incurred therein with a " loading " ot allowance corresponding to the overhead or admin- istrative expense incurred. The different standard costs having thus been ascertained, it becomes necessary to analyze earnings in a parallel way. Banking service gives rise to only a few distinct types of earning — the chief being interest or discount, exchange, and commissions. Special fees may be charged for certain kinds of service but they are always a minor factor in income. While, however, the general character of the earnings is uniform, they may be derived from many kinds or types of transaction. Most banks, for example, discriminate between direct loans to customers, paper bought in open market, loans made against warehouse receipts representing merchandise, collateral loans, income from bonds or other investments, etc. Rates vary as between the different classes of loans or paper, while they also vary with the credit standing of customers. They fluctuate also according to the condition of the money market. Jn testing the value of a customer's account it is essential to know not only the various kinds of expense incurred in maintaining it or carrying it on, but also the income which may be obtained from using the funds to which it gives rise. This " worth of money " or value of the balance in any given account is, as just seen, a composite matter depending upon the rates obtained from the various kinds of investment or loan which the bank makes. As in the case of expenses, the income or earning rate may be standardized by comparing gross income from a given source with volume of funds invested. Assuming that this is done for each class of investment, it then becomes possible to estab- lish an average rate of income or worth of money. This may be computed monthly and may then be averaged to create a quarterly or other combined figure. The accompanying sheet shows the earn- ings analysis maintained by a large bank. From the column headed " Average rate " the bank may conclude the gross income value of a dollar deposited with it. OPERATING COSTS 209 The sheet is used to enable the officials to ascertain, at the con- clusion of each month, the relation of gross earnings to loanable funds; interest paid to loanable funds; operating expense to loan- able funds ; taxes, exchange and so forth, to loanable funds ; losses recoverable to loanable funds; and finally net profits to loanable funds. An inscription is made, on the line parallel to the month, of the average percentage earned on the various subdivisions of loan- able funds and the next line indicates the amount in dollars. The figures are compiled from day to day for the Auditing Division or the Statistical Department on accrual sheets similar to the one repro- duced. On the reverse of the earning sheet provision is made for recording the earnings of the Foreign Department, also four columns covering the combined percentages. After the necessary steps are taken to insure the proper compilation of figures in the various de- partments affected, it takes only a little of the accountant's time each month to inscribe in the earning book data vitally required by the executive force of a large bank. The expense and earnings elements of the bank's cost problem have now been dealt with. A third, really ranking with these two, is the ascertainment of the free or loanable balance in any given ac- count. Such free or loanable balance represents the difference be- tween the amount technically on deposit at any given moment and the sum really available — that is to say, not represented by checks and drafts outstanding against the account and in process of collec- tion. The accompanying form illustrates the process of ascertain- ing this free or loanable balance. With standard charges or costs in hand and with the stand- ard or average value of money and the free or loanable balance in any account known, it is possible to proceed to the analysis of the account. When these basic figures have been compiled they provide a key to the mechanical operations required for analyzing the infor- mation growing out of daily banking operations. How such analy- sis is carried out may be illustrated from the following statement which can with slight changes, be adjusted to cover the needs of any banking institution : 2IO DEPOSIT A2TALYSIS SHEfiT 1 THE MODERN TRUST COMPANY Anedysis Department Aoount of Pirat BtCipl.r H.tioiul Baak. Ftom the 2€lli «r JAnnnrv 191fl SOBewhSTft, QhJO. uj 1 ITEMS NOT AVAILABLE LEDGER BALANCE NET CASH BALANCE DETAIL TOTAL Tlouuiidi Vi\ DR. Tlimiundi HA CR. ' -n."? 1 !5 a 3E IS 3 9 1 .6 3 a Rf 2 IE )i 12 'R 6 7! 4 « 2 IE IS 'S S M S nr 2 f 1 7 5 Rl £1 lO 16 1^ « > at i It FO 7t 2S 12 }8 9 i9 7 1 1( 1 61 55 17 SB 12 )< 8 1 Li b; 19 H IB s: BOB. » 1 u '0 9^ b; 19 r4 IB z; 10 1 11 2 >5 3( E2 11 1 ?i 2 6 9i K ^ S3 73 IP [■eisl 2 6 Eft 5! 3 '3 16 5( 13 1 9 ll 57 4! 14 1 ?■ *n S 11 10 S( 12 )1 15 8 ,t 10 Bl 14 i: eiD. 16 3C 2 7 !) 9£ 49 27 45 H 17 S 7; S 7f 84 66 SI .: 18 1 4f e 7; 4 IE 86 9^ 32 t 19 10 I 4E 1 3C n ;^r 17 31 14 »' 20 10 r 1 10 1 ^i 13 3 IB V- 21 £ 7< E fi e at 10 7( s:fi2 K 7e S 7( e 0( 10 7f Sis.23 p 7f a 7t e 01 J9 7( 24 lit 1 B 4 J,£ 30 50 86 i4 25 9. tit 1 f 1 3{ 40 3C 35 !5 _ to tat 1 EBA E ao^ iT 141 4 1( 5f 58 1 >3 30 6S9 19 9! Of 6 ,» 4: le 469 i» 01 HTB. :B 13 h 2a 34 Note: By accident the fleures In the Interchanged. This changes the Net Cash to Dr. 14.43 Ledger Balance Balance column for column for 14th lo 14th and 16th became Cr. 47.16 and (or 16th 1 See Bankers' Magazine^ 1919, p. 428. 212 THE MODERN TRUST COMPANY Account Cost Profit Country checks " Days Ending Paid collections " Loanable balance 5% " Handling " Exchange received country Interest on their credit balance " checks " Exchange paid " Exchange received par collec- Interest loss volume sent " tions If check book free compute Exchange received or volume checks paid at cost " sent " Administrative tax " Foreign Exchange " Miscellaneous debits " Discount received " Miscellaneous credit Account shows profit Loss " % Balance for interest and ex- " change ; Total Total The important part of the analysis is the compiling of proper cost figures. Before beginning the analysis of an account maintained with a banking institution and in order properly to compute the ex- pense of handling it, it is necessary to take into consideration every possible expense which each department in the bank is subject to, including the cost of clerical help, light, heat, rent, depreciation on furniture and banking fixtures, loss, if any, proportion of adminis- trative salaries and expenses, advertising, etc. There must also be a careful and painstaking tabulation of the number of items handled by the different departments, cognizance being taken of the number of times an item is rehandled by one or more departments. If a remittance received for credit being analyzed includes, say, 200 chetks, 50% of them payable in other cities, causing, rehandling five or six times before the checks are deposited in the post oflSce en route to the collecting bank; or if the operations entail five different handlings in any one department, then each check is treated and charged as five separate items.* Different methods may, however, be used when compiling the basic figures. If the cost per item in a department is figured on the (average number of items handled, including all rehandling necessary, then, of course, it can be treated as one item in any department, an additional charge being made upon the item each time it passes through the hands of the various departments until finally disposed of. OPERATING COSTS 213 After these figures are compiled the total average, over a number of months, can be narrowed down to the approximate cost or fraction of a cent per item which the bank expends. With the above form as a basis for analyzing the account it is necessary to ascertain the cost involved in each of the heads whiqh have been specified above, as well as the income to be derived under each of the heads of the right-hand side of the analysis. For the purpose of analyzing the figures in this way a sub-analysis of ex- penses under each item is called for. It is well to start with the first item on the left-hand or cost side, namely, " Country Checks." Costs entering into the collection of such checks may be analyzed as follows: Country Checks Total par items Volume Cost Cost Department cost per item Cost Clearing house department cost per Item Cost Currency department cost bills rolls specie r Cost Coupon department cost envelopes . . Cost Department cost envelopes and cou- pons f • Cost Loss 2 days on volume Cost Remittances received Cost Route department cost Cost Loss I day loi cents per M. Total In the Same way the principal costs involved in the management of the affairs of the several departments of the bank are analyzed as follows: 214 THE MODERN TRUST COMPANY Collection Department Number drafts received Number city notes Number tracers sent Number country notes Number unpaid collections Volume par collections paid Number paid collections Loan-Discount Number city notes discounted Charge made for service Number country notes discounted Number substitutions made Number Wall St. loans Number inquiries made for credit in- Number bonds, stocks, handled for formation and approximate cost loans labor and agency expense Profit in transactions Foreign Exchange Bank Bookkeeping Number checks paid Number checks returned Number B/L credits Number third teller credits Number carbons from check teller Number transfers If cancelled vouchers returned mail charge 6 cents Number times overdrawn Are morning credits added Paying Teller Items certified Average amount Express packages forwarded Is new money requested Number bills required Receiving Teller Number express packages received Average amount condition bills mutil- Number bills contained ated Note Teller Number black-book Number items redeemed Number letters advice Filing Number pieces filed When the cost analysis has been made it is comparatively easy to fill in the items on the profit side, inasmuch as they are the result of more or less standard charges. The loanable balance may be figured as returning to the bank a standard- income, which may be OPERATING COSTS il$ based upon the actual earnings of the bank upon its loanable funds during either the preceding six months, or a'ny other period that may be chosen. It should be borne in mind that the entire loanable bal- ance carried in an account cannot, as a matter of fact, be loaned; indeed it would not be fair to figure interest on a larger percentage of it than the entire loans of the bank bear to its total loanable capacity. The items of exchange received, both domestic and for- eign, and discount received are of course readily drawn from the ledger accounts corresponding to the name of the particular indi- vidual whose dealings are under scrutiny. W^en such an analysis as is indicated above has been made the data are at hand for figuring the cost of the account as well as its profit. A standard cost of performing each operation having been determined in advance, the number of operations necessitated, say, in the course of a month by a given account can be -multiplied by the standard cost of each such operation, with the result that eventually a complete cost analysis of the account is secured. Needless to say, it is seldom worth while to apply any such analysis to all of the accounts of the banking department. There will usually be some large or complex accounts which deserve it, but many others will present no such complex problems. It will be necessary only to ascertain ther facts relating to a few of the principal phases of such account. Knowing, for example, what is the average balance car- ried in the account and what is the total number of checks paid dur- ing the month it is comparatively easy to form a general idea of the profitableness of the account. Few banks have carried cost analysis to any advanced point and they are in many instances disinclined to resort to the elaborate and painstaking work necessary to ascertain the exact profitableness of each transaction or class of transactions. Such analysis, carried to a logical conclusion, will result in elim- inating from banks many undesirable accounts, or will show what steps should be taken to render accounts profitable and warrant retaining them. Following is a summarized statement of the analysis of an indi- vidual account prepared in form for review by the officer whose duty it is to consider the relative value of different phases of the business and indicates the use that may be made of cost analysis. AOOOUNT AITAiTSIS SHEET 1 THE MODERN TRUST COMPANY ■!j' ANj^LTSIS of ACCOPNT off p«d«rKl. Has, Dl«t.-^_ — FlRIOD af AHALT8I3 froa AVIBAQB DAILT LBDGSB SUAVCB ' ' ' Less AVIBAGB DailT OslATSD ItEUS ' Less dSSERVB and UuEBPLOYEO P0HD5,___* * ' • AVBBAQB Loanable E'uhds Ibtbbest Ibbus •-- , — — ' — ' Rdubbb of Days in Pbsiod shoring Hbt Debit Balahce, TotAL Net Case Balihcb - Debit (overdraft or lovoiuDtftry boait)* " »- « a • ■ Credit - • $ l_ Less ._ t ReSEBVE a llHEUPtiDfUHOS • *■■■ , TOTAL LOAHABCiB FUHOS fftt fine la]£ TO 03 the tccoutlTS COST INOO HE EIBBCT EXPBWSES:- SPBoiAU DisscT Costs: ?AT 'nDIrFi OVBftliBAD due to - Totals • "■ • BBT COST or INCOME of taxq aocoomt this Month • ■ * T' *" !! " 1 See Bankers' Magazine, I9i9> P- ^98. 2l6 CHAPTER XI STATISTICAL DEPARTMENT INTRODUCTION To compile facts in readily available form as the basis for in- telligent action; to reduce impressions to mathematical certainties; » to make it possible to judge future results by past performances ; to eliminate from constant scrutiny the large mass of information which, once digested, needs no further thought ; to deliver the overburdened officer from as much of the weight of responsibility as accurate and up-to-the-minute records can take from him; to enable him to con- centrate on those problems which require his best judgment, his constant and intelligent attention: — such is the province of this department. With the enormous growth of the trust company in recent years, it has become impossible for any man or group of men, howevet" able, to rely on memory and personal knowledge for information in regard to the investments for which they are responsible. It was enough in days gone by to read a few financial papers, to gossip with friends at the club, to depend on directors and on the information which drifted into the office, for the facts which kept trust company officers abreast of the times. Investments once made were likely to be forgotten — until the day of distribution or delivery, the expostulations of an irate beneficiary, or the news of a sudden decline in value centered attention on losses which might have been avoided. A western bank president says that he 'has been told for forty years of " systems that would beat the bank, beat the bookies, and beat hell generally," but he never saw one that " worked regularly." Perhaps, but trust company officers everywhere will welcome any system which increases their efficiency, and automatically and simply gives the information they need as a sound basis for action. 217 2l8 THE MODERN TRUST COMPANY The Statistical Department has hardly begun its evolution, yet it has come to stay, and money wisely spent in its development and in training skilled men and women to compile facts and to present them in readily available form, will prove a most profitable investment. Equally important is the discovery and training of an expert to interpret the facts so presented and to aid the busy executive in carrying out policies based on proven fundamental laws. How. many officers of trust companies to-day actually know what part of the business they do is profitable or the reverse, how many know anything about the management, earnings and affairs of the properties in which other people's money, for which they are re- sponsible, is invested? National and state laws have made it unnecessary for the indi- vidual client to ask trust company officers whether periodical audits are made, whether officers and clerks are bonded, whether adequate reserves are kept and a score of other essential questions. But the client, if he is a merchant or manufacturer, still may well ask whether the trust company keeps statistical records without which he could not conduct his own business successfully. On this the future value of the trust company shares which he owns and the intelligent handling of his own estate may §ome day depend. FUNCTIONS The Statistical Department should be at the service of every other department of the trust company. Its more important functions and particularly those which should be developed at the start are the following : The keeping of records which will enable the department to make analyses of securities owned and of investment possibilities; the analyzing of trust accounts as a whole and of individual items ; the compilation of information to guide in the purchase and sale of secu- rities and in keeping track of collateral; special investigations and research ; and, apart from the sphere of investments, information in regard to the business of competitors, in order to compare rate of progress, earnings and ei^ciency of service. As time goes on and the size of the department increases it can STATISTICAL DEPARTMENT 219 undertake a wide variety of functions, all developing from those already indicated. ORGANIZATION In a small trust company trie statistical and bookkeeping work can be combined. With growth of business and the creation of a Con- troller's office, the bookkeeping and statistical work can be separated under the general direction of this officer. An independent statistical department, entirely apart from the routine bookkeeping and auditing, as the laboratory or engineering department of a commercial business is separate from the production department, is the objective to be aimed at. The advantages of such an independent department are so many that its nucleus should be formed, even though it start with a single individual. An officer of a large trust company recently stated that if he could persuade a certain investor of ample means and with a remarkable insight into security values and investment tendencies to advise in regard to the company's security list, including its own investments and those of its trust accounts, he would gladly pay him an annual fee of $30,000. While the ideal head of a Statistical Department is not readily to be found, the investment brokers, bond houses and securities departments of the larger trust Companies and banks are developing a class of experts fitted by knowledge and training to render valuable service. There is, of course, no substitute for the keen and well trained banker, alert to changing conditions, with sound judgment, wide knowledge and practical experience. The chief statistician becomes his right hand man in all investment prob- lems, relieves him of a mass of routine detail, satisfies him that automatic procedure will bring to his attention a wide range of facts that he cannot afford to miss, and so not only enhances the efficiency of an already overburdened executive, but makes it possible to increase earnings, avoid losses and effect a valuable check on the regular organization which carries on the current routine operations of the company. The chief statistician should be responsible for the statistical 220 THE MODERN TRUST COMPANY records and reference library. Keeping in touch with market quota- tions and current literature, he should take charge of the making of investigations, the appraisal of security values and the prepara- tion of such periodical and special reports as may be called for by the officers and directors, or as may in his own judgment be deemed necessary. The chief statistician should have an ample force of clerks and trained experts so that he may be free to supervise the current work of his department, to confer with the officers of the company, and to prepare reports and make recommendations based on the facts which have been assembled by his subordinates. Statistics, unused, are a waste of space and money. They can be made, by intelligent use, the basis of steadily increasing efficiency and profit. QUOTATION INDEX Simplicity of records and ease of reference to essential facts are the keynotes of efficient statistical service. The tendency is to over- develop, to duplicate existing records and to lose track of the big issues in a mass of interesting but often irrelevant or unused detail. The quotation index is the most important record of the depart- ment — one which no trust company or bank can afford to be without. It covers all securities held by the company for its own account, for individual and corporate trusts and as collateral for loans. The securities received and delivered books are the sources of information covering accessions and deliveries ^ of trust securi- ties. The index can be kept on cards or in a loose-leaf book. As cards are better adapted to growth and easier to manipulate, the fol- lowing plan is recommended. Cards 5"X8" are ruled like a physician's temperature chart, in two forms and colors; one for recording njonthly, weekly or daily price fluctuations, the other for annual price movements. At the top of each card is a space for the description' of the security and just below are spaces for " years " on the annual cards and " months " on the cards for the shorter periods. While in most cases a monthly record will suffice and the cards can tht^s be made to last for 1 See page 338. QUOTATION INDEX. MONTHI.T OASD UNITED STATES STEEL CORPORATION COMMON 1919 J. F. M. A. M. J. J. A. s. 0. N. D. ■ 115 - 110 y A ^^ /- ■> 105 r A ^*«; ^ s 100 ^ J / > V ^ ^ ^ .^ : 95 ^ r r J V " 90 / 85 -/ ' - 221 QUOTATION INDEX. ANNTJAI. CARD A UNITED STATES STEEL CORPORATION COMMON 11 12 13 14 15 16 17 18 19 20 •21 ZZ 23 24 25 135 A 130 / \ 125 / 1 120 y U5 v. ^ 110 105 100 1 95 90 / 85 / /^ " 80 ^ / y r 75 A - ' _J r »/ 70 V / €5 V. J ' 60 55 A 50 / ^^ 45 ^ 1 40 ^1 1 35 » 222 STATISTICAL DEPARTMENT 223 twelve months and fifteen years respectively, in the case of an excited market, additional cards for weekly or even daily records may be necessary. At the left -hand are spaces in which to insert the scale of prices. Each tiny space in each block can represent one point or more depending on the extent of the price fluctuations of the particular security. At the right of the card is a space where lines are drawn in red pencil to show the cost of the investment held, with a brief reference to the amount and owner. " 40 #385 " arid a red mark on the line representing a price of 85 would indicate that trust account number 385 owns $40,000. par value at that book or cost value. When sev- eral accounts hold the same security, the' individual holdings are recorded at the proper price levels. When the number of accounts is too great to record them clearly on the face of the card, they are recorded in pencil on the back in spaces ruled to make it possible to group the accounts holding the security in question, by dividing them according to price levels — for instance 1-80, 81-90, 91-100, loi-iio and so on. A clip keeps together the cards representing each security: in front the current monthly quotation card, behind it the monthly cards for previous years, and at the back those recording the price movements by years. Guide cards divide the index into the following divisions : Stocks Railroad bonds Industrial bonds Public Utility bonds Government bonds Municipal bonds Miscellaneous bonds. Metal tabs of different colors are used to indicate : Maturities within twelve months Convertibles Sinking Fund Investment possibilities Questionable value In default. 4^24 THE MODERN TRUST COMPANY The quotations of active securities are inserted after the end of each month and after the end of each year from the Quotation Supplement of the Commercial and Financial Qironicle. As the quotations usually appear each month on the same page of the Quotation Supplement, it is an easy matter, after recording the number of the proper page at the top of the card, to find the quota- tion as often as it is needed. Quotations for inactive and local securities are obtained from a variety of sources, some of which tax the ingenuity and perseverance of the cferk responsible for keeping up the index. The source of the information should invariably be noted on each card. A pencil dot midway between the heavier up and down lines and at the proper price level is connected with the last quotation by a straight pencil line, or a dotted line where there has been no sale. In such a case symbols should be used to indicate " bid " or " asked " prices. Both high and low figures at which sales and bid or asked prices are reported should be recorded. The space between the two lines thus records the price movements of the security. Cards covering securities which have been sold or parted with should not be destroyed, but be kept apart for future reference. It often happens that securities come back in new accounts or are re- purchased. Compiling the original information is a considerable piece of work. Once done, the current recording of price fluctuations requires sur- prisingly little time. Absolute accuracy and always up-to-date quota- tions are prime requisites. Ratings should appear on all cards and those of the highest grades need seldom be examined. The clerk making the postings should be instructed to call attention periodically to all wide price changes and to put before the responsible officer lists of securities which by reason of questionable value, near maturity-or any other cause need careful watching. Experience has demonstrated that the quotation index soon be- comes one of the most used of all the records of the trust depart- ment. It is not only a valuable aid in connection with investment problems, but gives in condensed and readily available form the key STATISTICAL DEPARTMENT 225 data which are constantly sought in order tb settle innumerable other problems affecting trust accounts and investments. No other data should be added to the index except after the most careful con- sideration, for one of its chief values is its simplicity. A mass of detail on a key index tends to confuse, and delay action. Data not on these cards are usually found in the standard manuals where they can be quickly located as needed. ANALYSIS OF SECURITIES The Statistical Department cannot afford to be without the stand- ard manuals and investment services. In addition, where the size of the business will permit, the daily, "weekly and monthly •financial papers should be supplemented by the ticker and the best credit rating books and service. Government reports are becoming increasingly important and, with the development of export business and the growth of foreign in- vestments, a wider range of data and information is constantly being needed. A reference library, carefully indexed and in charge of a well trained and alert librarian, is of very great value. Files should be kept including a folder for each security on which data have been secured. Annual, or if possible, monthly reports of operations of companies -whose securities are owned should be secured, recorded and studied. CUppings and frequent correspond- ence should keep the investment files up to date. Prospectuses often form the basis for later comparisons — sometimes none too happy. Graphic charts are a great help and should be used freely both as regular features and in the preparation of special reports and statis- tics. Comparisons should be shown in percentages as well as figures. Detailed statistical information should, wherever possible, be ob- tained from original sources and standard manuals to save expense, duplication and chance of error. There are, however, many invest- ments about which such information is not available, while others require special analysis, close contact with current operations and rearrangement of the figures given in published reports to show essential facts. The mere assembling of such figures in uniform and readily avail- 226 THE MODERN TRUST COMPANY able order will automatically show striking differences between the operations of succeeding periods and of eompeting companies and will force a regular scrutiny of the facts by the clerk who makes the compilation. Investigations should whenever necessary include inspection and appraisal of properties. " Low visibility " in the figures may be intentional. A trip over a railroad system may reveal tendencies which are not reflected in either balance sheet or profit and loss account. It is unnecessary to describe here all the ramifications of statistical work. The basic information which should be obtained in regard to each security may be shown in the following general outline/ to which all subsidiary records can be related i Government Bonds: Relation to indebtedness^ of Natural resources Trade Population — per capita Income or revenue Expenditures Wealth Taxes Character State Bonds: (See Government Bonds) Municipal bonds and those of other political divisions of the State: Relation to indebtedness^of Taxable value or assessed valuation Revenue and expenditure Total net debt Productive assets Provisions for extinguishment of debt Population — per capita Railroad Bonds: Control Ownership Management 1 See "Stocks and Shares," by Hartley Withers; "American and Foreign Investment Bonds," by William L. Raymond; "The Principles of Bond Investment," by Lawrence Chamberlain; "How to Analyze Railroad Reports," by John Moody. STATISTICAL DEPARTMENT 227 Public Utilities: Physical characteristics Location of road Its size or milea|;e Character of traffic Products of agriculture Products of animals Products of mines Products of forests Manufactures Merchandise and miscellaneous Character and condition of equipment Operating efficiency Traffic density Passenger Freight Train-load Income factors Earnings and their distribution Fixed charges — margin of safety Disposal of surplus Capitalization factors Assets and liabilities Stocks and bonds outstanding per mile Net capitalization Net income on net capital Transportation Light, heat, power, water etc. Franchise : Perpetual Limited Source of power Natural Artificial Territory served Growing (developing) Stationary Competition Management Attitude of population served Industrial Bonds : Products of Agriculture Animals Mine Forest 228 THE MODERN TRUST COMPANY Manufacture Essentials Non-essentials Quickly consumed Long lived Proportion of Labor f entering into Material I retail cost of Distribution cost [ product Protected by- Patents Trade marks Natural monopoly (sole source of supply) Secret processes Market for product Domestic Foreign Open competition Service Quality Efficient production Balance sheet Assets and liabilities (Tangible and intangible assets, fixed and, current liabilities) Income Account Earnings* Fixed charges Net surplus Product Sales Manufacturing cost Cost of selling Operating profit Credit position Turnover Good-will Financial position Quick assets Quick liabilities Bank loarfs Cash Inventory Stocks: (See Bonds) STATISTICAL DEPARTMENT 229 In order to indicate how some of the data referred to above can be assembled and put into shape for ready reference, the following forms are described. They are designed for the securities of in- dustrial concerns and may be modified for other securities. As the fluctuations in quick assets and liabilities and in earnings of industrial investments are likely to be more rapid than of those based on taxing power or transportation, they must be followed more closely. Changes in assets and liabilities often indicate in advance the trend of security price movements. An essential record is a loose-leaf book in which at least five pages are devoted to each security. Each sheet lasts a year or more and, by watching the figures, changes in condition and earnings can readily be ascertained. Each page contains 14 parallel columns, in which the following data are recorded periodically : By months and for year — by items in dollars Page I Balance Sheet (Show sub-totals for quick assets and quick liabilities) Page 2 Profit and loss account By months and for year — by years in dollars Page 3 Sales Page 4 Net profit or loss By months and for year — by items in % Page S Capital Stock =100% Book value Quick assets Cash Receivables Merchandise Quick liabilities Accounts payable Notes payable Excess quick assets Ratio Net worth Comparative statistics, by industries, are also valuable. They in- dicate the extent to which fixed and quick assets, material, labor, selling cost and other factors affect each class of investments. entering into product 230 THE MODERN TRUST COMPANY Comparative Charts by Industries by years — by items in dollars and % 1. Relation of Cost' of product Cost of selling Cost of administration and gen- eral expense 2. Relation of Material Labor Direct Indirect 3. Relation of Invested capital Sales Turnover 4. (a) Ratio, fixed assets to fixed liabilities (b) Ratio, current assets to cur- rent liabilities (c) Ratio, current liabilities to cash on hand (d) Ratio, total assets to total liabilities (e) % of net earnings, after all charges to gross business (f) Stock, preferred amount price ; high and low dividend rate (g) Stock, common amount price; high and low dividend rate For each individual industry the following charts view the situa- tion from enough angles to show where more detailed scrutiny is advisable. Individual Industry. Chart cumulative by months and for year — 631 items in dollars 5. Net sales Cost of product Selling expenses Administration and general ex- penses STATISTICAL DEPARTMENT 231 Charts by months — by items in dollars 6. Production Labor Direct Indirect Material Overhead 7. Manufacturing Cost of production Cost of idle expense 8. Inventory Total Raw Semi-finished (in process) Finished 9. Sales Net sales Inventory (total) Unfilled orders 10. Sales Gross sales Returns Net sales 11. Sales Net sales Manufacturing cost Selling expense Trading profit 12. Sales Net sales Collections Ratio in % 13. Financial Total payroll Manufacturing Selling Administration and general expense 14. Financial Cash Receivables Loans Accounts payable a K F PARTICIPANTS AND iNDDSTRlES CONSOLIDATED INCOME ACCOUNT FOR MONTH AND PERIOD ENDING, J9 PARTICULARS MUNTH PERIOD INCRtAStS AND DtCREASES t 1 AMOUNT Wo AMOUNT «/« MONTH PERIOD NETSAUS — COST M < 100 t 100 > 1 CROSS TRADING PROFIT SclUas E)ipeoie..-« Admlaiiiraiive and Ceneral Expmae-. Net Tradinc Piiorit^ Aii. RoytUiei CROSS OPERATING Dednel: Roy.Kic. iBU-mt AmoriiutioB of Paicata Heurre for Dcprf R«Mrv» fof Inier-""' CompiBX Prgfil. ■UiKcllaueou* Laimi OPERATING PROFIT(Bcro[vUxk*) Reiervs for Tanet NET OPERATING PROFIT Aid: ftirpluaat— TOGETHER -.-— Deduct: Incame DistiibulIoD.. Surplus— Per Balance • Deuili t Inacases in black, tlflcreases in red AT DATE AT SaWE DATE PREVIOUS VEAH QUICK ASSETS.»»_ t t S i QUICK LUBILUIES,. DfinLLu OtBita at ££,'£1X3?'^ 232 STATISTICAL DEPARTMENT 233 15. Financial Quick assets "l To determine relation |- and seasonal high afid Quick liabilities J low points 16. Financial Disposition of earnings Reserves Taxes Dividends Surplus For the directors of an industrial compatiy these facts should he supplemented by a monthly consolidated income account, in which both figures and percentages are shown with comparisons for the same month and period of the previous year. The form reproduced is that used by a large manufacturing company. ANALYSIS OF TRUST ACCOUNTS The analysis of each new trust account and periodical appraisals of old accounts are of the greatest importance. The analysis should be made with the following factors in view : Types of investments Security of principal Marketability Income yield Term J f''"' [ long Taxation A ruled analysis sheet headed with the name of the account shows in parallel columns the following details : Rating Par value Description of security Interest or dividend rate Convertible Due Cumulative 234 THE MODERN TRUST COMPANY Cost Price Amount Market value Price Amount Percentage yield Present market Taxable in state Tax (%) paid by company Gross annual income Net annual income Yield (%) to maturity Present market Each item is listed alphabetically under the appropriate security classification and a recapitulation sheet contains the totals and aver- ages of each class. FUTURE DEVELOPMENT The management of the statistical department affords a field for ingenuity and resource which is not afforded by the other and more stereotyped divisions of the trust company. This means that no standard type of statistical organization Cc^n be recommended. In fact, the needs of -different enterprises vary considerably and the statistician should be always on the alert to get new ideas and to accumulate data which may be of service. In some trust companies the statistical department works in close conjunction with the credit department. In others it may be closely allied or even subordinate to either the banking department or the individual trust department. These differences depend upon the purpose in mind in organizing the statistical section. If it is to be merely a more or less routine department of analysis it becomes an adjunct to the investment side of the trust company's activities. If, on the other hand, it is to have the function of leadership and guidance in connection with the company's business, independence for the statistician is both desir- able and remunerative. When this work is regarded as that of STATISTICAL DEPARTMENT 235 essential business analysis and forecast, he assumes a conspicuous position as scientific adviser and in that capacity his duties take on an importance which they would otherwise lack. It is this aspect of statistical service which is being developed in the modern trust com- pany. The necessity of maintaining historical records is obvious, but from the broader standpoint, the proper field of the statistician is that of business investigation, just as the function of the credit department is that of credit inquiry. The two fields are closely allied but are far from identical. Just as the credit department is con- cerned with the actual problems of lending and credit apportionment, so the statistical department is concerned with the problems of busi- ness future and with ascertaining the trend of business conditions. Long before changing business conditions, altera,tions of earning, and the like, have recorded themselves in altered quotations of investment securities, the statistician should have been able to point out import- ant tendencies or movements and to analyze their bearing upon the business of his company. In so doing his reports will have served to prevent unwise investment policies or to protect and safeguard the institution against dangers which might beset it as the result of gen- eral conditions over which it had no control. It may be said that studies of this kind are carried on by public authorities, at least to some extent, and that the technical and financial press of the country finds this one of its important fields. These publications do not, however, meet the need for immediate and ac- curate information of a statistical nature which is felt by every large investment enterprise. Not only are the current reports, both of the Government and of even the most reliable journals, controlled by conditions of expediency, but they are necessarily general in their character and do not relate to . the particular work of any given institution. Moreover, the essential value of statistical data depends upon their being in hand early, so that the teaching derived from them may be available without delay for the business guidance of the trust company concerned. The practical work of the statistician in this broader aspect of his functions is twofold — that which is of interest to the public clientele of the company and that which is significant for the management only. From the standpoint of the management the statistician's 236 THE MODERN TRUST COMPANY function becomes primarily that of studying those business tendencies which directly affect the company. Thus, for example, a trust com- pany with a large commercial banking department is immediately concerned in all those matters which affect banking solvency, reserve conditions, discount rates and the like. Records in the statistician's office should accordingly show all those classes of facts which are fundamentally important in judging of general banking conditions. He should be in close touch with the government offices which have important relations to his company and should arrange to be steadily and fully informed of their actions. For this purpose not a few companies maintain special representatives jn Washington as well as at the capital of the state in which they are located. They expect to be provided without delay with all reports and statements affecting the condition of banks, with orders, rulings and the like, made by banking authorities, and with data of every kind, that may be made available to governmental agencies, bearing upon general business conditions. A large trust company should' know immediately what dates have been set for reports to be furnished by members of the system to which it belongs; changes, if any, that are made from time to time in the conditions of examination, and variations that may take place in the general position of the banking world. It should be the function of the statistician to study current banking reports as made public and to show by suitable tabular comparisons any important tendencies which may be rtvealed there. His files should contain a complete list of important public statements such as those issued by the Secretary of the Treasury, the Comptroller of the Currency, and the banking authorities of the state in which his company is incorporated. During the recent war many of the most important banking influences originated with the Government, and Government orders and rulings had an immediately significant effect upon bank operations. The various " black lists " issued by the governments which were at war indicated the limitations that had been imposed upon business, and necessitated prompt and accurate work on the part of the scientific student in every bank and trust company affected by them, in order to show clearly what the result of their enforcement would be. It is not, however, exclusively with STATISTICAL DEPARTMENT 237 such matters of direct interest that the statistical department is con- cerned. Movements of prices, large purchases or sales by the Gov- ernment affecting prices in the several branches of trade, and a great variety of other business data, should be compiled, analyzed, and their net results put before the officers of the company. The statistician should from time to time make reports showing the change in business conditions as affecting borrowers in a trade in which the company has largely invested its funds. Thus, for example, in the cotton states it is at all times true that very large loans are being car- ried by trust companies on cotton in its various forms. These loans are necessarily based upon an estimate of the probable price to be received for the staple during the near future. The Statistical Department in such a trust company should make it a point to collect all possible data regarding cotton, the situation of the crop as revealed by estimates, changes in acreage, reports of deteriora- tion in condition, variations in warehouse stocks, exports, prices on the exchanges, and the like. For the purpose of obtaining such data it may be found desirable to organize a corps of correspondents who report as a matter of business courtesy at frequent intervals regarding conditions in their sections, or who stand ready to answer circular letters of inquiry that may be sent periodically. At times it may be worth while for the statistical department to send special investigators or to pay fees to well qualified men in different locali- ties in order to secure information. Such data, when put into proper shape, enable the officers of the company to frame their policy with respect to loans upon cotton some time in advance and to avoid hazardous commitments which they must otherwise make. The case of cotton is only an illustration. Very much the same situation exists at every headquarters of an industry. Thus the banks of New England which are interested in the cotton ttiilling industry and those in the middle west which are largely concerned in the development, say, of the automobile business, must occupy themselves with ac- quiring as accurate and complete information as they can regarding the position of the trades which they are rnost directly serving. It is not possible to indicate any standard set of data which should be accumulated by the statistical department of a trust company with 238 THE MODERN TRUST COMPANY reference to a given line of business. The statistics may be more or less elaborate and their form must depend upon the special condi- tions of the industry. A trust company which is largely interested in exporting and im- porting and which has close connections with foreign countries or which is engaged in placing the obligations of foreign countries nec- essarily calls upon its statistician for continuous and accurate infor- mation concerning developments affecting foreign trade. Thus the statistician may to good advantage compile elaborate export and im- port figures and -may with benefit to his institution subdivide and classify such figures much more fully than can be expected of any Government office. He should be able at all times to furnish com- plete information concerning the fiscal, economic, industrial and banking situation in the countries in which his company is directly interested. This department becomes one of exceptional importance when the enterprise has foreign branches, as is true at the present time of a number of American banks and trust companies. Such branches -are themselves suitable agencies through which to collect the data that are desired from the foreign country, but the facts must be properly sifted and presented in order that their meatiing may be made clear to the officers of the company. It is the duty of the statistician to trace business tendencies in such foreign fields and to have at his hand well digested collections of facts so that when called upon he can report promptly on outstanding condi- tions. As already indicated, he should also, as he notes important tendencies, call them to the attention of the officers through the medium of a condensed report or memorandum. CHAPTER XII FOREIGN BANKING INTRODUCTION Participation in foreign banking enterprise is comparatively new in the United States, but the expansion of our trade with other countries has within the past few years materially altered the posi- tion of this branch of banking and its significance as an element in the operation of American banking institutions. At the opening of the European war there were not more than seventy-five American banks that possessed direct correspondent relations in foreign coun- tries while practically none of them, except one or two institutions organized expressly for the foreign trade, had established regularly organized branches abroad. It is now certain that, owing to the changed conditions growing out of the war, a large part of our trade will in future have to be financed by our own institutions and that much closer financial relations with other countries will have to be kept up. Direct remittances and payments will be much more in demand and for a long time to come the money market of the United States will be steadily called upon to furnish funds for foreign enterprises. The foreign department thus becomes an im- portant and integral part of every considerable Americairi bank, or trust company engaged in the banking business, while even the smaller institutions will find it more necessary than heretofore to arrange good foreign connections either directly or through others. Foreign banking will therefore be included in the regular business of many trust companies. NATURE OF FOREIGN BANKING There is nothing in the nature of foreign banking that differ- entiates it in principle from domestic banking. Its ideas and 239 240 THE MODERN TRUST COMPANY methods are essentially the same and the principles upon which it is based are identical with those that control in the domestic field. Nevertheless the practice of foreign banking dififers widely from that of domestic banking, and involves the use of connections and ex- pedients which are not necessary in local transactions. The char- acteristic of foreign banking is that it concerts claims vaUd abroad in foreign money into claims valid here in our own money. This may be contrasted with a typical domestic transaction somewhat as follows : Domestic Banking. — A sells 50 bushels of wheat to B who agrees to pay A $100 at the end of 30 days with interest at 6%. A takes B's note to a bank which credits him with $100 taking the note of B with A's endorsement. A checks out the $100 paying it to X.Y.Z. whom he owes for goods or services. During the month X.Y.Z. pay B by check for goods bought from him so that at the end of the month B has in bank $100 plus. B then pays the bank by check $100.50, the face of the note with interest, receives back the note and destroys it. Foreign Banking. — A in Winnipeg sells 50 bushels of wheat to B in New York who agrees to pay A $100 upon delivery to him of a bill of lading showing shipment of the grain. A draws a draft on B for $100, takes it to his bank and receives credit for $100. The bank forwards it to a New York bank which presents it to B who pays the bank (N. Y.) $100. This sum the bank credits on its books to the bank in Winnipeg. A pays out (by check) his $100 to X.Y.Z. in Winnipeg. These individuals have bought goods in New York and they go to the bank, which takes their checks and issues in exchange its own checks on the New York bank in which it has the $ioo to its credit. X.Y.Z. transmit these checks to New York where they are presented and paid (exchange and interest omitted). While both transactions are the same in nature the foreign opera- tion described includes the following elements not present in the domestic transaction : Employment of the banking and currency systems of two countries rather than one, in order to cofnplete the operation. Equalization of credits between places instead of making such equalization between different times in the same place. FOREIGN BANKING 241 The basic service of banking is the same in both classes of opera- tion, but foreign banking involves a more complex application of fundamental principles. Foreign exchange is a system by which debts contracted in one country are paid in another. The rate of exchange is the value or price of the currency of one nation calculated in that of another. The trade balance between two countries is the difference between exports and imports, but their actual balance may be very different, owing to other factors such as the expenditures of travellers, pur- chase of foreign securities, and foreign loans. Foreign exchange is used in the settlement of international trade balances, and serves, by the use of credits, to obviate the transporta- tion of currency in payment of each separate transaction. By means of foreign exchange, balances are settled between different countries, just as a bank account enables an individual by drawing and receiving checks to effect the necessary transfer of balances without resorting to the use of currency. When gold, which is the standard of value for international transactions, is shipped, this is because such demand for exchange has arisen that the premium or price asked is in excess of the cost of actually transferring the metal. The moment that the price falls below this cost, shipments of the metal cease. A foreign exchange business necessitates the opening of credits with banking houses in the principal financial centres of the world, or at least in London or New York with banks already having such connections. Buying and selling drafts is the simplest.form of foreign exchange transaction; in this business any financial institution may engage by simply opening accounts abroad, selling drafts to its customers, and, in order to maintain the foreign balances, buying drafts payable abroad which it forwards for collection and deposit to its credit. ORGANIZATION FOR FOREIGN BANKING In studying the organization required for the conduct of foreign banking two distinct phases of the problem may be recognized: internal organization of the bank or trust company itself for the transaction of the business ; external organization or mode of making 242 THE MODERN TRUST COMPANY connections for the purpose of transacting the foreign side of the business and of getting more. These are' two entirely separate problems and they may be considered independently of one another. Before discussing the internal organization it will be best to explain the special functions or duties which fall to the foreign department of any banking institution. In the typical example of foreign bank- ing already given the following distinct services or duties were per- formed : Lending or discounting. Collecting (abroad). Remitting. Converting foreign into domestic currency and vice versa. Offsetting or " clearing " obligations. Of these five distinct operations only the first and last are neces- sarily present in the local banking operation used for purposes of comparison. FOREIGN DISCOUNTING The fundamental principles of lending are the same whether in foreign or domestic business. The bank receives paper based on commercial operations, analyzes the credit behind it, discounts it, and passes the proceeds to the credit of the customer. No theoretical analysis of bank lending or discounting in foreign trade is, therefore, necessary. The technique of the process is, however, different in the two cases. Because of the obstacles to a proper appraisal of foreign credits, the bulk of foreign transactions are either based directly upon a specified movement of goods which gives rise to paper relating to a particular transaction, or else they are undertaken and carried on for a foreign banking institution whose standing and credit are themselves a guaranty of the liability incurred or credit extended. Foreign banking operations are, therefore, more generally based on transfers of individual lots of goods than are domestic operations, and in consequence there is distinctly less necessity for pure credit analysis and extension. Because of these facts the greater part of the foreign department's business is founded upon foreign bills of exchange which represent the drawings of local ex- FOREIGN BANKING 243 porters on foreign customers or of foreign shippers upon domestic importers. These foreign bills may be stated in foreign or domestic currency, as will later be explained. In any case, they are accom- panied and secured by documents evidencing the ownership and ship- ment of the goods themselves. The more intricate foreign exchange transactions are largely in the hands of international banking houses, yet many trust com- panies which do a commercial banking business are establishing foreign departments both for the convenience of their customers and for the more profitable use of their own funds. Their principal foreign business is in the buying and selling of exchange against merchandise and in connection with trade operations, in the purchase and sale of drafts, and the issuing of both travelers' and commercial letters of credit. The successful conduct of a foreign exchange business requires a knowledge not only of monetary but of trade conditions abroad. COLLECTING In exchange against merchandise, the prpcess is as follows: the exporter, immediately on shipment of his wares, in order to reimburse himself, sells his draft drawn on the purchaser of the goods, with the bills of lading attached, and at once renounces title to the goods. The purchaser of the draft becomes the owner, not only of the draft for which the drawer is liable but of the merchandise as collateral security. The draft may be forwarded directly to its destination for collection in accordance with its terms, or it may be sold and a profit at once secured. Drafts are usually drawn payable at sight or at three, ten, thirty, sixty, or ninety days after acceptance. The term " thirty days after sight " signifies that the draft is payable thirty days after its presenta- tion to the drawee for his acceptance, or engagement that the obliga- tion will be honored by him at maturity. Such presentation should be made promptly. In the purchase of a draft with a bill of lading attached, the amount of the draft has to be calculated in its equi-\{alent in the foreign cur- rency, and additional charges such as insurance, postage, interest. 244 THE MODERN TRUST COMPANY stamp tax, and commissions may have to be qomputed, and great care must be taken to be certain that all the papers are in proper form. These documents include as a rule the following: Bill of lading Insurance policies Consular certificate or invoice Such special certificates, export licenses, etc., as may be neces- sitated by law or custom at any given time to ensure free movement of the goods. It is clear that a " foreign bill " of the kind described may be pre- sented to the bank for discount either by a customer who has drawn it upon a foreigner or by one who has received it from a foreigner. In the former case the customer will bring the bill and documents directly to the bank with a request for a discount or loan, while in the latter they will probably have been presented by the foreign creditor or a local bank acting for him to the importer's bank as a result of pre-arranged agreement. If the draft and document are offered by the local customer or exporter as a basis for credit, the problem of the banker is the same as that involved in any ordinary loan — the judging of the credit of the individual and the determining of his proper claim to accommodation. There is a special security in the shipment of goods to which the documents give title, but the draft has not been accepted by the foreigner on whom it is drawn so that the loan is really a straight single name advance designed to liquidate a bona fide sale of goods. Assuming that the bank has determined to make the advance, it now has the problem of fixing the charge to be imposed therefor. If the draft or bill is drawn at sight and the terms upon which the foreigner has bought are cash when documents are handed him, the bank has only to compute the time required to present the bill and get returns. This may be taken for purposes of illustration at 30 days. The bank's basic charge is, therefore, dis- count at the current rate for 30 days plus transit time. Additional service is performed in converting foreign money into domestic. How this is done will be presently explained. It is nec- essary first, however, to consider the management of the lending operation from the reverse standpoint. The bill may have been FOREIGN BANKING 245 drawn abroad and may represent payment for goods shipped to a buyer in the place where the bank itself is located. Suppose that this draft, being payable at sight, reaches the buyer at a time when he is unprepared to pay. He may in that case ask the bank to pay the draft, and the bank, if satisfied of his credit, may do so, turning over to him the documents representing the goods, but retaining his obligation to pay at the expiration of the period for which the loan was granted. The bank in this case has credited the foreigner who drew the draft, or may have remitted to him a payment draft upon some bank in his own country. Both in this instance and in the previous example the bank has been called upon to advance funds and has made a loan protected by the general credit of the customer and by a claim on the goods represented in the specific transaction under consideration. The character of the lending process and the service performed is really the same in the two cases and is not dif- ferent in either from that involved in an ordinary loan. FOREIGN REMITTANCE AND EXCHANGE It was noted above that the charge for discounting the draft was only the basic or first charge to be exacted by the bank for dis- counting the draft drawn on the foreign buyer. This is because the payment of the draft (on which the bank has made its advance) is to be made at a foreign point. For instance, — suppose that the draft is drawn on a London house and is stated in sterling. What the bank will get when the draft falls due and is collected is a ■given number of pounds sterling in London — not in New York. Even if the foreigner upon whom the draft is drawn has agreed that it may be drawn in dollars so that when collected the debtor has to liquidate the obligation in dollars, it remains true that the debtor is to make the payment in London and that what he will do in practice is to offer the number of pounds sterling which at the price then prevailing will suffice to acquire the number of dollars equal to the face of the draft. The bank in discounting the draft, therefore, has practically agreed to take payment at time of collection in one of two forms : 246 THE MODERN TRUST COMPANY Pounds sterling in London, or Dollars in London. In either case an element of risk of loss is incurred. Suppose that at the time the draft is discounted one pound sterling is currently worth five dollars. There is no certainty that 30 days hence this equivalence will hold good. At that time changes may have oc- curred which render £1 currently worth $4.90. If the draft was for £1,000 the bank may have advanced $5,000, less discount, but when collected the face (converted into dollars) will be worth only $4,900. A charge must, therefore, be made by the b^nk to cover this element of risk. Such a charge is currently called foreign exchange. It represents the cost of converting units of fpreigij currency or credit into corresponding units of domestic currency or credit. This charge is seen in its pure form when a customer who has (it may be supposed) just arrived from England brings to a New York bank notes of the Bank of England asking to be given their value in American money. These notes represent a claim to money in London and the bank in purchasing them must consider and allow for the fact that its funds will not be available until collected in England and that they may then be worth more or less than at pres- ent as stated in America, while even if fully worth their original value they will still be in England, and not in New York. True, the bank may sell such currency to another, e.g., an American who is planning a trip to London, but this merely transfers the problem of equivalence of value to some one else. The transfer of credits from one country to another through a third having a different monetary standardj is called the arbitration of exchange. Thus in remitting funds from this country to Paris, it may be cheaper to remit by the way of London, rather than to purchase exchange on Paris direct, owing to the lower cost of exchange on Paris in London. The chief difficulty often lies in the intricate calculations by which the small profit on each transaction must be determined. Cambists, persons skilled in the exchange of money, have prepared tables which are generally used in computing transactions in exchange and greatly facilitate the handling of busi- ness which would require an enormous expenditure of time and labor were each calculation to be made separately. FOREIGN BANKING 247 ACQUIRING FOREIGN' CREDIT The bank which discounts or buys the draft stated in foreign currency does not, however, usually count upon immediately collect- ing or converting the foreign credits to which it has become entitled through discounting the draft. It knows that just as exporters desire to discount drafts entitling them to receive payments abroad there will be importers who will appeal to it to provide foreign funds for the purpose of enabling them to make payments abroad. It will, therefore, wish to " carry " the proceeds bf the draft, or in other words to keep them on deposit in the country in which they are payable. In order to do so it needs either a branch or agency of its own at the foreign point, or else a correspondent relationship with a foreign bank. Since even a very large institution cannot have branches at all points with which it will do blisiness, it will necessarily have many correspondents. The relation Between a bank and such correspondents is thus important and is likely to be a mutual relation- ship, each of the two institutions performing certain services for the other upon request. These services may be merely the same that would be performed by the bank for any depositor. It may carry an account with its correspondent sending it items for collection which are credited by the correspondent and drawing upon the balance thus developed. But the correspondent may be called upon to furnish accommodation or advance funds in order to enable the bank itself to draw at times when its collected balance is insufficient to meet its needs. Provision may be made for such " overdraft " accommodation by placing with the correspondent some sound securi- ties or other collateral against which overdrafts are granted at a specified rate of interest. The foreign correspondent may, however, feel such confidence in the bank and its solvency as to be willing to grant the overdraft credit without collateral and in that case there is merely a " straight " unsecured loan made by a bank in one country to a bank in another. Eventually the settlement of such an advance can be brought about only by the shipment of goods which create offsetting bank credits or through the transfer of investment securi- ties issued by citizens or enterprises in one country to those in the other. 248 THE MODERN TRUST COMPANY SOME SPECIAL SERVICES It has now been shown that the bank performs in its ordinary dis- count operations the various functions into which the foreign banking operation has been analyzed — including landing, collecting, remit- ting, etc. If all foreign transactions were -carried out by a bank in one country operating in relation with a bank in another, every com- plete transaction would embody all of these elements in some form. Every country, however, has various institutions which are doing business in competition with one another and every foreign transac- tion is likely to be split up into various sub-transactions. Thus for instance, in a typical case, lending or discounting may be under- taken on behalf of an individual who has imported goods for which he must pay. The payment may be made to another bank which is acting for the foreign creditor and in this case such bank will be warranted in making a suitable charge for collecting the proceeds of the draft. It may be assumed that the creditor in the foreign country has asked that these proceeds shall be paid to him by cable transfer as soon as realized and in this case the collecting bank will send a cable message ordering payment made to the creditor by its cor- respondent in the latter's country. Here is a fair example of the process of remitting, for which a banking charge is customarily and properly made. If a bank carries the credits it acquires abroad until it can ofifset them by debits due to the shipment of goods in the opposite direction, the service it renders is that of cancelling or clear- ing obligations and to carry this out it is obliged to make advances out of its current local funds from time to time to the persons for whom drafts are discounted or to whom they are furnished. In charging for its services in this connection it must make allowance for possible losses in value due to the changes occurring while the bank is wait- ing for the account to clear itself. FOREIGN EXCHANGE POLICY AND MARKET The question must occur to every thoughtful manager of a foreign exchange department how he can liquidate his obligations should he FOREIGN BANKING 249 finance an excess movement of goods and so become " long " on foreign currency or credit, or vice versa be unable to obtain enough of it to meet his commitments. It is evident that if there -wert but one bank engaged in the business, so that it handled all outgoing as well as all incoming financing the problem would be comparatively easy. Since all balances due to inequality of imports and exports may be settled in money, the foreign exchange banker would recog- nize that his problem was ordinarily that of keeping sales and pur- chases of bills and remittances about even. Minor seasonal fluctua- tions would be carried by the overdraft credit plan already outlined, while occasionally a heavy movement of " capital goods " intended for investment purposes would be offset by shipments of securities rep- resenting such goods and permitting foreigners to take the goods and keep them for industrial use on a semi-permanent basis. Move- ments of gold would occasionally occur, though not often, owing to the expense and credit disturbance growing out of such movements. It is, however, seldom or never true, that all incoming or outgoing business — still less both — can be handled by a single bank. The bank or trust company in the foreign exchange business is therefore obliged to be a close student of the foreign exchange market and of the quotations therein, not only in order to keep informed as to the prevailing level of charges but also to draw from changes in quota- tions suggestions regarding the probable direction of trade and the preponderance of the balance on one side or the other. The foreign exchange market is very unstable, being based chiefly on informal in- terchange of information and quotations among the larger dealers and institutions, but it affords a regular basis of valuation and per- mits an institution to " hedge " or insure itself by selling or buying bills in a given foreign currency whenever it finds itself carrying too much or too little of that particular kind of exchange. INTERNAL ORGANIZATION The internal organization of the Foreign Department of a bank or trust company depends in its extent and complexity upon the size and scope of the business of the department. It may consist simply of a " Foreign Exchange Manager," who is given such minor cleri- FOREIGN BANKING 251 cal assistance as he needs, or it may require the services of a large corps of experts. In any case it is easy to establish in the depart- ment a separate accounting system which is subordinate to the gen- eral books as the department deals with foreign currencies and must make corresponding adjustments to American currency. There are many books and accounting forms that are peculiar to the Foreign Department. It is possible to illustrate only the more important. REMITTAITCE ADVICE AND EECOED rcK a. s IMe MODERN TRUST COMPANY tMlurJ w, hf K ttml jm f COLLECTION tui CREDIT f w wmM/ tf mMaiit, rii Tittli«in>fihi«ftmauMum4i*iw,miiii^tnt}wlHtJmtcri,ihjnl>j»ntmit. ~^ ""— —- " ""' ■OUT* "-" lUTauCIMM ■ — ■ ■.M .t- •.«. -mmm lOH- r The ledger sheet for foreign accounts furnishes a record of ex- change purchased, with appropriate columns for the conversion of the value of the bills listed into domestic fnoney. The credit page of the ledger is shown. The debit page is exactly similar, except that the heading " Dr." appears at the upper right hand corner and the last column becomes " Dr. Balance." It is also desirable to maintain in the Forfeign Department a record of remittances and a record of drafts drawn and presented. The remittance record and advice is made out in triplicate. The original 252 THE MODERN TRUST COMPANY is mailed with the drafts. The second sheet has the word " dupli- cate " printed across it, and follows by a later mail. The third sheet is retained. It is perforated at the upper margin -to fit a loose-leaf binder. Paralleling the remittance advice is the record advice of drafts drawn. The original is forwarded with the drawings, the duplicate is sent by a subsequent mail, while the triplicate copy is retained. DRAFT ADVICE AlTD EECOED ORIGINAL na S. S THFf AODZRH TRUST COMPANY .18 OCA* tma: mft TM KLew * u«T w FOBEIGN CHECKS d-aw. by qub CMmcsiwatHn Am ouMECve* vmic- plm» homii u«w „„ 1 „..._ .«».. SM ^ \y> c-'l W jz'^T' ^& r?^ Y- r^^ O ' -»«*«*w^*. While there is great variation in the types of letters of credit, the accompanying form is an example of good" practice. The record of letters of credit issued or guaranteed furnishes detailed information covering the whole series of transactions grow- ing out of the issue of each letter of credit. The form which is reproduced is for a commercial credit. .For travelers' letters of credit the same form is used, or one in which all reference to com- modities, and the transactions arising out of their purchase and shipment, is omitted. MODERN TRUST COMPANY NS^-V^ Y.OR.K N.Yj ^^//44 ¥M^/i y/u)/i'4/- /.■ '// /^ /,.,)//'/.'//?■ ,/y/, /'i '/// f/'//^ u /^/,w , //'^ /uf/<^ M/.J ^''jff/ *-Af,vr/ <■' r,,^/./ /■ ^f /" ffr"^^//f. 7 ''/'"' ,/ ,'/>■ /•/(/,)■/ u f r V / Modern Trust ('ompa-ny^JKH' Yobs .H. Y. / / /////'// (■//■ i^^//^ //rfyij/zw//," ///i'/i'//{'/ffYfv//(/f '/vf/yf/ //,; 7/ X/y cAf^H^m. ^^d^l^iffT^^^: Travellers' checks are also issued by the principal banking houses. They are for fixed sums, usually i^, ^lo, or £20, and state on the face their value in the currencies of the various countries of Europ^ most frequently visited, so that the holder can tell the exact amount he is entitled to receive, without any question being raised as to the rate of exchange. Identification is provided 253 LETTER OF CREDIT AGREEMENT IN CONSIDERATION o1 the iwuance fry Me Modem Trust Company/. NuO' York. N.K "f ^ Letter of Credit, as »^ copy annexeJ, receipt of which is acfptowtedgcdt the unJersigneJ iainll}/ and »ev- eratl]/ agree luHh taid Mor/emiTr'jsl Compan]/. its uiccessan and auigtis.: to poi) f* or ihem on demand m UmleJ Slates gold or cuurva/ent. an]/ and all amounh drarvn in virtue of taid Credit, p/ui one-half per ccnL commiuion. intcrat and cnarges. The tmderngncd hercb}i aulhonzc ttnd AfiJern Trust Company, rtl uiceeuon W asiipa. to k& ai enji ftW, qf public or private sale, ailh or js>\lhout notice, any iccuriiiet of any ^d vfiatever. that it or they may hold agaimt such Credit, and to become the purchoiCTS thereof The undersigned further agree that the payee shall affix sample signature to the Letter of /m/icffhon tn rufiect if uid Credit before lucfi Credit u in any vay made use of. The undersigned farther agree that H said Credit be either tost or stolen, on d'ucouery thereof, imme' dlately to notify ihc said The Modem Tnul Compirt^.Naw Yorlf^ N K by telegraph, and the uttJersigneJ jointly and severally auihonzeThe Modem Trust Company, upon receipt of such nolificallon (I) to notify by past their carrespondcnls of uich lou or theft, and (Z) to take such other preaiutiona as they in Uaa discration may deem proper or advaable m the premises, and the undersigtKd jointly and %€VereUy agree to reimbufie said Modtm^Trust Company, for any a»d all expetaes thereby tncumd; and further, if onji pay- ments are made against such Credit, so lost or stolen, by any Banl; or Bar^ert observing the precautima uiual at the place ot payment and belore- the receittt of any such noli£e. the undersigned jointiy and sever- ally agree to indemnify and save harmleu ThA ModemTriat Company or their correspondents from any loss sustained or liabilily inearred thereby. The time limit originally tpeeified in said Credit may. upon the application of the holder thertof. he extended by said Modem Trust Company, or any ot its correspondents, without notice to any other party hereto, and thereupon all the temn hereof fhall reman m full force and effect .for the terrrr of tuch extat- Bon. wlhout releasing any parly hereto. Tho Modem Trust Company may- assign or liamfer this mstrument and may deliver any seeurUy or any part thereof to the transferee or transferees who shall tka-eupon become vested fUh aR the poinen and rights herein above ghoen to said Modem Trust Company, its successors, assigns and correspondents, CJ " ^ 1 1 .. 1 "1 -/^ t_r u -LrM L... 2S6 o 1 ~ \ ^ /' fel " 1 iS - - - "\\" if )" i 7 / r:::::::::ih l^ ~~- V, ii - - _ "'/ i^ /L 1 :: 1/ il ~- it ? : : :m .- < - - 7 5 " - - / 1 7 § ^ - i y ^ v:: z - n . Pi' ,- / H 1 ' — — ^ 1 — — ' J 1 — — A o fH w p K 1 , 1 1 — n y — — ' ' — _* ^ 'A V- — a. a y = = o — — St "2 11 — — ^ — 1 A ^ ^ ^ ^ s£ 267 268 THE MODERN TRUST COMPANY chronological order, of any important transactions which have a bearing on the case. Sheet B. — Record of bonds received, certified and delivered. The trust number and title of the accounf are shown at the top. The upper third of the page is devoted to bonds received and bonds certified. At the left-hand side are columns for the date, bond numbers, and amount of bonds received. The bonds certified sec- tion to the right has columns for date, certified by, bond numbers, and amount, the series being repeated. The remaining two-thirds of the page is for the record of bonds delivered. This section occupies the entire width of the sheet and contains columns for date, whose order, delivered to, coupon, boAd numbers, and amount. By the omission of the " delivered to " column and the substitution of one headed '' received by," following the amount column, the receipts for bonds delivered can be taken on the same sheet. The difference between the bonds received and bonds certified shows the bonds on hand and uncertified. The number of bonds certified, less the bonds delivered, gives the balance of certified bonds on hand. The form is duplicated on the back of the sheet, and in large bond issues several leaves may be needed for the same security. Sheet C. — Record of bonds paid, cancelled, and cremated or returned. The record of securities retired "is kept on this sheet and shows the various steps in the process, as the form just described does in the matter of their use. The upper two-thirds of the page is devoted to bonds paid and bonds cancelled. The bonds paid section contains columns for date, numbers, and amount, the series being repeated. To the right of this section is that for bonds cancelled, containing columns headed date, cancelled by, numbers, and amount. The remaining section, occupying the lower third of the page, his columns headed date, whose order, coupon, bond numbers, amount, how disposed of, and a signature column for receipts in case of return of the cancelled bonds, or, in case of cremation, for the .signature of the officer attesting this fact. When an account is closed, all its sheets are put in a transfer binder. Both open and closed accounts are kept in the order of their trust numbers. CORPORATE TRUST DEPARTMENT 269 A special record of the issue of coupon and registered bonds is kept when the two classes are interchangeable at the pleasure of the security holder. The rules of the New .York Stock Exchange re- quire that when such exchange is made, the numbers on the original bonds must appear on the securities issued in lieu of them. The books just described relate to the documents and history of each trust, and do not provide records of cash transactions. Receipts and payments of cash enter into most, if not all, corporate trusts, but as these closely correspond to the transactions involved in individual trusts, the necessary forms and operations are described in later chapters.^ The trustee should see that any taxes on the issue of securities are paid. The federal stamp tax on the issue of corporate securities is usually paid by affixing the requisite stamps to the mortgage or the trust agreement and endorsing a notice to such effect on the bonds or other securities. FISCAL AGENT As fiscal agent the trust company takes such general or special charge of the finances of its corporation client as the agreement in each case provides. It may virtually assume the role of treasurer, making all collections and disbursements, or it may merely receive securities for safe-keeping, or make investments or collect income. It may act as fiscal agent for the payment of coupons, interest, divi- dends, and principal moneys, under the terms of a mortgage, or independently of any trusteeship. In both cases the procedure is identical, but in the former the authority is found in the mortgage or trust deed; in the latter, an agreement is entered into, defining the duties and liabilities of the fiscal agent and the corporation for which it acts. An abstract sheet in the general record of corporate trusts should give the details of the appointment. For the payment of all coupons, bonds, interest, and dividends, payable at the office of the trust company, a special window may be provided in the corpo- rate trust department. All moneys received for disbursement by the fiscal agent, both 1 See p. 334. 270 THE MODERN TRUST COMPANY income and principal, are entered in a scratcher and are passed over to the trust department receiving teller for deposit in bank. Coupons are presented for payment in envelopes specifying the title of the security, number and amount of the coupons, and the name of the institution or individual presenting them. Coupons representing interest on corporate securities, but not those represent- ing interest on state, municipal or other tax-exempt obligations or on United States^ Government bonds, must bq accompanied by proper ownership certificates signed by the owner of the securities as re- quired by the income tax regulations.^ Payments are made, when possible, by check. On the stub of the check book are shown the name of the payee and the title and total amount of each sort of cou- pon paid. To provide for cash payments, a petty cash account is opened in the corporate trust ledger, and a check is drawn for a fixed amount, sufficient for ordinary needs, to be kept in a cash drawer. A " petty cash " book is used in which the payments are itemized as they are made. The amount of money and paid coupons on hand at all times equal the balance of the account in the corporate trust ledger. At the close of each day or when the money is exhausted, a check is drawn covering the total amount paid out, the stub showing the several coupon or other accounts and the amount to be charged to each. The petty cash book is settled periodically or when the fund is replenished. All payments by check are entered in the scratcher from the data on the stubs. In the scratcher these payments are grouped according to the accounts to be charged. The various items composing each charge are entered short, the aggregate being extended. The totals in the scratcher settle with the total payments shown by the stubs and agree with the face value of the paid coupons. The scratcher is used by the bookkeepers in making the necessary entries in the corporate trust ledger. But one posting is piade, covering the day's total payments against each account. Each sort of coupon is in a separate envelope when presented for payment. They are stacked like a card index in tin boxes of the proper size to hold the ordinary coupon envelope, and when sorted all those containing coupons of 1 See regulations 45 of the Internal Revenue Bureau, articles 361-376, for requirements as to ownership certificates and withholding the federal income tax at the source. ti » THE MODERN TRUST COMPANY. •0' 1 n 19 I Mr , • Dear Sir; I We forward you to-day by | a package of cancelled { < Coupons, aggregating Dollars which have been paid by us out of funds deposited by your 1 Company for that purpose. Please sign and return the accompanying receipt. Very truly, Manager Corporate Trust Dipt. —i: I o ^0 i'-B a fS 5x3 ^ I 2. •S- « 5- 5 [| I 1 V rf o )5- o ^ "1 CO r n a i: ■< - ? \0 A ^*» o o O 3 •c J 1 e o c -J O 5 • pi o ^f ^ :^ = o p-^ ij a 3 '■n \4i g O 5? iS o = I'i ►^ li" 1. 50 i 1.1 i5 <^ 1} o ® 1 ^___ s ? &; I'j" < tr e g r r lu c cr ? o < ) 1 n 1 'J 1.1 ]|1 pST ^ 1) N( O ;i S a 1 ^ 1 __ >- CORPORATE TRUST DEPARTMENT 271 the same issue are placed together. After the day's business is set- tled, and the coupons of each issue are found to agree with the figures in the scratcher, they are cancelled by having one or more holes punched in them. All cancelled coiipons from each sort of bond are kept together, and at proper intervals they are sent with a statement of the account to the company which issued the security. The statement is an ordinary cash account showing the balance on hand from last statement, cash received, payments made, and balance on hand representing the value of the coupons still out- standing. With this statement it is usual td send a letter of advice and a form of receipt to be signed and returned. The following details iare shown in the receipt: description of coupons, when due, coupon number, number of coupons, @, amount, and total. In an issue of bonds subject to redemption, great care is required to detect coupons presented for payment which have been detached from called bonds. As calls are often advertised in only one or two newspapers they may escape the notice of bondholders; hence it is well to refuse payment of the coupon due on the date when in- terest ceases unless the called bond is presented at the same time, or, if the coupons are paid, pains should be taken to notify the payee of the call. Otherwise the bonds may be held until the fol- lowing interest period, and the unsuspecting owner's first notice may be the return of the next coupon with a statement that the bond had been previously called and that interest had ceased. Occasionally coupons are payable only on the order of the reg- istered owner of the bond — another annoying pitfall for the coupon clerk to guard against. Fortunately, such provisions are rare. For the payment of dividends, dividend lists are prepared and cer- tified as correct by the transfer agent. The transfer agent may be the transfer department of the same trust company which acts as fiscal agent, or some other corporation ; or, in the case of organiza- tions which transfer their own shares but employ a fiscal agent to distribute profits, it may be the company declaring the dividend. The dividend list is prepared from the stoifk ledger on loose sheets ruled in columns for the name and address of the stockholder, the number of shares held, the check number and amount of the divi- dend, and the name and address of the payee. When received from 272 THE MODERN TRUST COMPANY the transfer agent, the dividend sheets contain the names and ad- dresses of the stockholders, the number of shares held by each, and directions as to the payment and dis|)osition of the dividend. The sheets are preferably made out on the typewriter. To the data received the fiscal agent adds the number and amount of each check. The dividend sheets serve as stubs, and from them the checks are prepared. Loose checks are used, numbered consecutively. The dividend sheets and corresponding checks can be distributed among a number of clerks and a long list can be disposed of rapidly. If the dividends belonging to a large number of stockholders are payable to a single corporation or individual, or if stock is held by a corpora- tion acting in various capacities for a number of accounts, such holdings can be listed 'on a single dividend sheet, and one check be issued covering all. In such cases a letter of advice is sent with the check, showing the items represented by it transcribed from the dividend sheet. The name of the payee and the amount in figures are often written on the checks by hand. The amount in words in the body of the check is often filled in with a rubber stamp. For this purpose racks of stamps are kept on hand, with the various combinations needed for dividend distributions at various rates. Indelible ink is used as a safeguard against alteration. Odd amounts for which no stamps have been provided can be written in by hand. The amount stamped in the body of the check can easily be compared with the figures when the chedks are being signed. If the dividend list is long, the names and addresses of the payees are printed from a stencil in a position to show in an " outlook " en- velope. The dividend check may contain full information as to the nature of the disbursement. In this case it is not necessary to enclose a card with the check. If one is sent, the following form is sufficient: — THE MODERN. TRUST COMPANY The enclosed dividend check is mailed you in accordance with the terms of a standing order on file with this company. Please deposit the check or have it cashed prdmptly. No acknowledgment is required. Prompt notice should be given if address is changed. CORPORATE TRUST DEPARTMENT 273 When no details are given on the check, it is customary to enclose an explanatory card specifying the name of the company, the rate of the dividend, and the da'te when payable, in addition to the more general information given in the form shoWn above. Where " outlook " envelopes are not used, the addressing can be most rapidly and accurately performed by the use of a mechanical addressing device, and in case of loss the stencil remains to prOve where the dividend was sent. The stencils are kept in boxes, stacked on edge in alphabetical order. Changes are made as notice is re- ceived, so that the list is constantly ready for use. Where the envelopes are addressed by hand, this is often done at slack times, in order to provide occupation for the clerks in the department. As each envelope is addressed it can be dropped back of the card in the stockholders' index giving directions as to the disposition of the dividend. This makes it easy to alter addresses on both cards and envelopes at the same time and to have a set of envelopes con- stantly ready for use. If a number of checks payable to various stockholders are mailed to the same individual or company, it may be worth while to use an alphabetical sorting tray so that all the checks to be sent to a single name can be put in the same envelope. When the dividend checks are issued, the ledger account con- taining the funds to meet the disbursement is charged through the scratcher with the total payment. As the checks are paid and re- turned cancelled, they are checked off on the dividend list. The amount of the outstanding checks is verified by settling the deposit account against which they are drawn. The cash balance in the account equals the amount of the unpaid checks. The lists for each company whose dividends the fiscal agent pays are filed chrono- logically in binders. The procedure in paying registered interest is the same as in pay- ing dividends, except that if the bondholder has filed no ownership certificate for the purpose of the federal iiicome tax the withhold- ing agent must make out the appropriate certificate in each instance.^ In making principal payments, whether of coupon or registered bonds, the securities are presented as in the case of coupons, and 1 See Regulations 4s of the Internal Revenue Bureau, Article 369. 274 THE MODERN TRUST COMPANY ' the items are treated in exactly the same way. If the principal is registered, a power of attorney to transfer the security to bearer, and, when required, evidence of the authority for making the trans- fer, must accompany the papers. The bonds, after payment, are cancelled, unless the issue is to be extended or for some other reason the lieii of the mortgage is not extinguished. When the fiscal agent takes charge of the securities or other assets of a corporation and makes investments, collections, and disburse- ments, the relation is precisely similar to that of agent for an indi- vidual, and the method of procedure is the same. REGISTRAR The New York Stock Exchange, like most other stock exchanges, in its constitution requires that all active listed stocks must be reg- istered. This Exchange also requires that a: trust company or other agency shall not at the same time act as registrar and transfer agent of the same corporation. In the popular mind, and even in the minds of some trust company officers, the difference between the duties of the two positions has been more or less confused. Both have been created to safeguard and facilitate the passing of title to shares of stock, but " the duties of a transfer agent and a registrar are not synonymous; they are distinctive. One is called upon to examine and give clear titles to property transfers, and the other is merely to record such transfers. Were both to assume equal respon- sibility, it would cause a conflict of authority and a delay that would render business almost impossible of execution, especially in New York, where the volume of business is tremendous. Consider the fact that some transfer agents alone act for corporations whose total capital aggregates a billion and a half of dollars. " During the days of great speculation ,by oiificers of railroads, they started the printing-presses and over-issued many shares above the authorized capital, causing panic and ruin. Subsequently, the registrar was established for the sole purpose of preventing such over-issue, assuring the investor that the certificate which he had purchased was one within the amount of the capital of the corpora- CORPORATE TRUST DEPARTMENT 275 tion. Now no stock can be listed by a corporation on the Stock Exchange without complying with its rules. These rules require the appointment of a registrar so as to prevent any over-issues. " The form of contract with the registrar is as follows : — " ' You are hereby appointed Registrar of this Company to register its Cap- ital Stock, consisting of Shares, par value dollars.' " This is followed by a notice from the Stock Exchange authoriz- ing the registrar to register a certain amount of shares of corporation. The authority contained in the above merely pre- scribes a limited duty, which is: To record shares of stock to a certain amount. This service is recognized by all corporations, by the transfer agent, and by the Stock Exchange. Where certificates are subsequently transferred and presented to the registrar with the new certificates, the registrar does not examine the indorsements or titles to these certificates. They agree that it is solely the duty of the transfer agent to make that examination — a duty for which the transfer agent is suitably paid, the compensation of the registrar being about one-half less." ^ Although there are few decisions of the court to guide one to a definition of either the duties or the responsibilities of registrars, an examination of the causes leading to their appointment and of the practical duties they perform sustains the view quoted above. On no other assumption can the present position of the registrar well be explained or justified. Those registrars who hold the contrary opinion, that " the duties and liability of a registrar do not differ in any marked degree from those of a transfer agent," ^ virtually dupli- cate the functions of the transfer agent. It has been suggested that the designation " agent to register transfers " would be safer and more correct than the word " registrar." ^ The latter name is, however, in common use and is gradually becoming better under- stood. Where there is a real risk of misinterpretation, the trust 1 " Duties and Responsibilities of a Registrar," E. C. Hebbard. Trust Companies, Vol. I. p. 989. 2 " The Duties and Liabilities of Trust Companies acting as Transfer Agents and Registrars," Henry J. Bowdoin. Proceedings Trust Company Section, American Bankers' Association, igoo. 3" The Duties and Liabilities of Trust Companies acting as Transfer Agents and Registrars," Felix Rackermann. Proceedings Trust Company Section, American Bankers' Association, 1898. 276 THE MODERN TRUST COMPANY company, before accepting the position of registrar, can always resort to the simple expedient of executing a contract which speci- fically limits its liability. When the trust company is appointed registrar of a stock, an account is opened in the record of corporate trusts. The abstract sheet should specify the title, classes of stock to be registered, the compensation to be received, and any other pertinent facts. The following sheet, ruled in ordinary ledger form, is headed with the trust number and title of the stock. A credit is made for the total authorized issue stated in shares. On the debit side a charge is made for the total number of shares registered as having been issued. These debit entries are initialled by the officer in charge of the de- partment for the total number of shares issued and registered (the total original issue). The difference between the debit and credit sides represents the authorized stock not yet issued. This record is kept as a safeguard against an over-issue of stock. It can if preferred be kept on cards or in a small bound ledger. After the entire authorized issue is registered, new certificates are registered only as outstanding ones of an equal amount are cancelled. Each certificate received by the registrar is examined and entered in the stock register before being signed or cancelled, as the case may be. A separate stock register book is used foe each stock registered. Each page of the stock register is divided into two sections : that on the left, for certificates cancelled, contains columns for certificate numbers and number of shares; the right-hand section, for certifi- cates registered, has columns for date of registry, name in which new stock is issued, certificate numbers, shares, and date of cancel- lation. Proof of the total issue is made by subtracting the totals of the " stock cancelled " columns from the totals of the " 'Stock reg- istered " columns, the balance being the number of shares out- standing. The total of outstanding shares can also be found by listing the open items in the " certificates registered " section. If a company has more than one class of stock, a separate book is kept for each. For inactive issues, bound volumes of uniform size are satisfactory. For large and activ.e issues, loose sheets should be used so that the work may be divided among a number of clerks. The register can be further divided into files for loo-share CORPORATE TRUST DEPARTMENT 277 certificates, lo-share certificates, and certificates for odd lots. A binder should be used which permits the sheets to be readily inserted and removed. In times of great stock market activity, the duties of the registrar may be very heavy and, as one day's work cannot go over to the next, it is necessary to have an effective organization and accurate and systematic methods. TRANSFER AGENT Title to certificates representing ownership in the capital stock of a corporation may be transferred on the books of the company by the owner in person or by a lawfully constituted attorney. A century ago a separate certificate was often issued for each share of stock. When the stock was sold, the owner usually made the transfer in person, and the original certificate was reissued with the purchaser's name indorsed upon it and attested by the proper officer. With the growth of stock companies and vastly increased dealings in their shares, it became necessary to facilitate the passing of title to stock. The response to this need has been the development of the transfer agency. Although many companies, even large corporations whose stock is actively dealt in, still transfer their own shares, it is now customary to appoint another responsible Corporation — most often a trust company — to perform this duty. The trust company oc- cupies the position of agent and as such does the work which would devolve upon the transfer clerk of the corporation if the transfers were made in its own office. When no special contract is entered into, " it would seem gener- ally safe to say that the transfer agent will remain free of any liabil- ity to its principal for damage or loss so long as the agent is guilty of no negligence. ... It is not an insurer and is not to be held to infallibility. It must, however, be cautious and vigilant." ^ Even in the exercise of " caution and vigilance," moreover, many legal points are involved, and liability may be incurred through refusal to transfer, if it is later proved thait the papers were in proper shape, so that here, as in other parts of a trust company's business, 1 " The Duties of Trust Companies acting as Transfer Agents and Registrars," Felix Rackermann. Proceedings Trust Company Section, American Bankers' Association, 1898. STOCK •REQISTRU )betificate$ cancbllbdI OEETIPICATES REGISTERED Certi- cateNd Shares Date of Kegistry Name i Certi- cate No Shares Date of Cancellatioil| , I 278 CORPORATE TRUST DEPARTMENT 279 it is a safe rule to act only on advice of counsel when any doubt exists as to the legality or validity of a transfer. The transfer agent if negligent may be liable not only to the principal for whom it acts, but also under certain circumstances to the purchasers and sellers of the shares which it transfers. When the transfer agent is in one state and the 'corporation for which it acts is chartered under the laws of another, new difficulties may arise from the variation in statutes and local practice. In doubtful cases, when a transfer is made by a thoroughly responsible indi- vidual, firm, or corporation, a bond of indemnity can sometimes be taken to protect the principal and agent from loss, and prevent a refusal to transfer on account of a trivial irregularity. The transfer agent assumes far more responsibility than does the registrar. This fact is recognized by the larger although still often inadequate com- pensation which is usually paid the transfer agent. The great majority of transfers result from stock exchange sales, and in these cases the exchange rules as to " good deliveries " irmst be complied with.'^ Securities in the names of individuals in fidu- ciary capacities are not a " good delivery." The word " trustee," " executor," " guardian," etc., on the face of the certificate is notice to the transfer agent of the existence of a trust, and since the instrument or authority creating the trust may give no power of sale, the proper authority must be shdwn before a transfer can' be made. Stock held in this way is often first transferred by the seller into the name of some individual or firm (for instance, the brokers commissioned to dispose of it), and is then offered for sale. The New York Stock Exchange, before a stock can be listed, requires a statement of the location of the transfer office and name of the transfer agent, and, after the stock is listed, any change in transfer agents or place of transfer must be approved by the proper committee of the Exchange. Stock exchange rules also prescribe the kind of certificates which shall be used for listed stocks. They require the use of engraved plates and such combinations of color as will prevent counterfeiting through photographic or other processes. Stock certificates are bound in books, one to a page, and numbered in consecutive order. 1 See Appendix. New York Stock Exchange, Rules for Delivery, p. 496. 28o THE MODERN TRUST COMPANY The officers of the issuing corporation sign the certificates and affix the company's seal, and then entrust them to the transfer agent. At the time of making a transfer the transfer agent enters on the certificate the name of the new stockholder, the number of shares, and the date of issue, signs the certificate, and then sends it to the registrar to be countersigned and registered. It is often stated on the face of the certificate that it is valid only when signed by the transfer agent and countersigned by the registrar. The stub gives the certificate number, the date and name in which it is issued, and the number of shares. When the certificate is delivered, a receipt may be taken on the stub. On the back of the certificate an irrevo- cable power of attorney is engraved, the following being the form in general use: — 'C For Value Received hereby «ell, assign, and ^<%^^ transfer unto ,•• S'- «- ^>.: ggBy In presence of ^S.3| rt'^ a When a certificate of stock is to be transferred, the owner signs the power of attorney, the signature is witnessed and is guaranteed by a member of the Stock Exchange. To complete the transfer, it is then necessary only to fill in the name of the purchaser and the name of the clerk who acts as attorney. If the name of the purchaser or his attorney is not inserted the certificate is said to be in bearer form, which means that it is ready for transfer at any time and can pass from one owner to another by delivery of the certificate. In this way a certificate may pass through many CORPORATE TRUST DEPARTMENT 281 hands without any transfers on the books being made. When the name of the attorney, either a firm or an individual, has been filled in, but it is not desired to transfer the shares, a power of substitu- tion in the following form is stamped on the •back of the certificate and executed. This again makes the certificate a good delivery. I (or We) hereby irrevocably constitute and appoint my (our) substitute to transfer the within named Stock under the foregoing Power of Attorney, with like Power of Substitution. Dated 19 In presence of On presentation to the transfer agent, the power of attorney must be carefully scrutinized to see wihether it has been properly executed, witnessed, and guaranteed, before the stock is transferred. It was a common practice to paste the cancelled certificates back in the books from which they were originally taken, the open items being represented by the stubs to which no certificates were attached. This is analogous to the almost forgotten custom of pasting can- celled checks in the books from which they were torn. Stamping the stubs with the date of cancellation, arranging the certificates chronologically as cancelled, those for each day in numerical order, and filing the packages by dates, is the more modern method. The other plan serves the purpose in the case of a very inactive stock. In addition to the abstract sheet in the record of corporate trusts, the transfer agent's records are kept in stock transfer books and stock ledgers. Bound transfer books are used, a separate one being provided for each issue of stock. At the top of each page is the name of the corporation whose shares are transferred, sometimes followed by the statement, " The undersigned, owners and holders of stock of the above-mentioned company, for value received, do hereby, by our respective attorneys, duly appointed, respectively as- sign said shares of such capital stock in the manner below set forth." The rest of the page is divided into two sections, — the left hand for certificates cancelled, and the right hand for certificates issued. The " cancelled " section contains columns, for the numbers of the = -= = == = = == = = = = = = = = i 1 1 1 U a I ^ 1 1 n ' '5 1 9 1 ^ i ll |J II 1 * , 1 J, n 1 P 2 i H 1 1 1 i 'H » ; 9 1 1 1 1 ' ^ 1 1 ^- ». 9 1 ji " ^ if. __^__ ^_^^^^ __ , ,, ^ ^ _ 282 CORPORATE TRUST DEPARTMENT 283 certificates, the number of shares represented by each, the ledger folio, names in which stock was registered,- and a column in which the attorney making the transfer signs his name. The " certificates issued " section has columns for date, number of certificate, number of shares, ledger folio, name and address of stockholder. The total number of shares surrendered and cancelled agrees with the total number of shares issued. For an active stock, two sets of transfer books used on alternate days for making transfers, and postings to the stock ledgers, respectively, greatly facilitate the work of both transfer clerks and bookkeepers. Another form of transfer book is the following : at the left of each right-hand page are columns headed ledger folio, certificate number, and shares. To the right of these columns under the words " for value received " the names on the certificates to be cancelled appear at the top of the page ; below them the words " do hereby assign and transfer to," with the names into which the shares are transferred, and at the bottom of the page the name of the corporation and the signature of the stockholder or attorney who makes the transfer. Each certificate cancelled and each one issued occupies one line, the necessary data for posting in the stock ledger appearing in the columns at the left of the page. The shares column is ruled across the middle and at the bottom to show the totals of shares cancelled and issued, which must agree. The left-hand page is ruled in four columns : placed to order of, shares, transfer and issue certificate to, and shares; and is used when certificates are placed to order and instructions for transfer are given later. Either of the forms of transfer book described makes it possible to transfer into one certificate a number of certificates previously standing in different names, as all items 'which are to go to the same name can be grouped together. In the old form, in which a separate transfer was made by the attorney representing each owner, this could not be done, consequently a single individual buying from different sources would receive at least one certificate representing each lot. When the shares represented by part of a certificate are sold, the number to be transferred is stated in the power of attorney, and new certificates are issued covering the shares sold and the balance which is reissued without change of name. When an 284 THE MODERN TRUST COMPANY exchange of certificates in the -same name is desired, splitting a larger certificate into several for smaller amounts or consolidating several small certificates into a larger one, the title to the shares does not change. The transaction shows on b^th sides of the transfer book as an exchange of certificates only, and no power of attorney is required. If sales are made to various purchasers of shares represented by a single certificate, the stock may be delivered " by transfer." In other words, the seller takes the certificate to the transfer agent and makes the necessary .transfers, either transferring the stock directly into the names of the purchasers or else placing it to their order. In the latter case, the transfer agent does not issue new certificates until written instructions are received from the persons to whose order the stock was placed. If such instructions are not received within a fixed time or before the transfer books close for dividend or other purposes, the stock is transferred into the names of the firms or individuals to whose order it had been placed. The stock ledger can be bound or loose-leaf. For active issues, the loose-leaf form is preferable. There is a separa'te ledger for each company whose stock is transferred. The stockholder's name appears at the 'top of the page, and the ordinary form of stock ledger is used with a balance column in the centre. The left-hand side of the page shows certificates cancelled, and has columns for date, name, transfer folio, certificate numbers and shares. The certifi- cates issued are shown in a corresponding series of columns on the right-hand side of the page. If shares are issued before they are fully paid, and instalments are called for from time to time, the face, of the certificate bears the statement that the first instalment of a specified amount has been paid, and later payments are indorsed on the back of the certificate. For such shares the stock ledger requires the addition of money columns on both debit and credit sides, so that the paid- in value as well as the number of shares may show. In making transfers, both the number of shares and amount paid in are speci- fied. It is not necessary to record the paid-in value when the stock is full paid or when there is no likelihood of further instalments being called for. CORPORATE TRUST DEPARTMENT 285 Postings are made from the transfer book on the day following that on which the transfer was made. When a loose-leaf stock ledger is used, it is advisable to make one person responsible for the volume and to require -him to initial each sheet which is inserted. A transfer file is kept for closed accounts. The leaves are kept in alphabetical order both in the stock ledger and in the file. Divi- dend lists are taken off on the typewriter on sheets such as have already been described.^ Instead of closing the transfer books while the dividend is being prepared, the custom is growing of declaring dividends payable to stockholders of record at the close of business on a fixed date some time in advance, the books being closed only over night. This obviates the many delays and annoyances incident to keeping the transfer books closed for any length of time, and* is a practice heartily to be commended. It, however, necessitates having the stock records in such form that a trial balance can be rapidly taken off. Loose-leaf ledgers and plenty of clerical assistance make this a simple matter, as the ledger can be divided and settled by letters or other arbitrary divisions. If the trial balance cannot be taken off over night, no transfers are posted till it is completed. The method of paying a dividend has already been described in connection with the duties of the fiscal agent.^ Registered bonds are transferred exactly like stock. Usually the same bonds are reissued after the change of ownership has been recorded on the back of the bonds. Sometimes a power of attorney is engraved on the back, as in the case of stock cer-tificates, and a new bond is issued whenever a transfer is made. If the original bond is to be reissued, loose powers of attorney are used in making transfers. Both transfer books and ledgers for bond issues are kept in the same way as those for stocks, and the method of paying interest on registered bonds is similar to that of paying dividends. When "a stock is listed on the stock exchange of more than one city, a transfer office is maintained in eaqh. If the stock ledgers are kept in one city as headquarters, the other transfer agents report daily all transfers they have made, furnishing copies of the transfer sheets from -which postings are to be made in the stock ledgers, and sending the cancelled certificates to the headquarters city the fol- 1 See page 271. 286 THE MODERN TRUST COMPANY lowing day. If stock ledgers are kept in each city, the transfer agents are required to report daily to each other the number of shares cancelled in a city other than that ia which they were issued, and therefore discharged from the books of the issuing city. The better plan is to keep the stock ledgers in the headquarters city. The transfer agent should transfer no stdck unless the federal tax and the state tax (if any) on stock transfers are paid and should also make sure that the federal tax is paid in the case of an original issue. VOTING TRUSTS Voting trusts provide an item of business which is increasing in volume. In connection with the organization or reorganization of a corporation it is often desirable for a while to keep the control of the management and policies in the hands of the stockholders who are at the time in the majority, although they may wish to be free to dispose of their stock. They therefore deposit their stock certificates with trustees, who issue in exchange stock trust certif- icates. The trust certificates carry the right to dividends and are dealt in practically in the same way as stock certificates. The trus- tees, however, have the right to vote on the stock during the existence of the voting trust. The laws of the different states vary with respect to the irrevocability of these trusts. In New York, for example, such a trust may be made binding upon the parties for five years. In most cases the voting trustees appoint a trust company their agent to hold the stock certificates, to issue and transfer the stock trust certificates, and to distribute the dividends received on the stock to the holders of the trust certificates. ■ MANAGER OF UNDERWRITING SYNDICATES " An important function of the private banker is ' placing ' secu- rities for corporations issuing them — that is, undertaking to dispose of an entire issue, or a specific amount of an issue, in the market upon certain terms agreed upon. Ordinarily the price is fixed by agreement with the officers of the corporation issuing its shares or bonds, either on its first organization or a reorganization, or on an CORPORATE TRUST DEPARTMENT 287 increase of capital, and the banking house receives a commission on the amount disposed of by it. Sometimes the issue, or a certain por- tion of it, is underwritten by the banking house, which means that it obligates itself to dispose of the entire amount on the terms agreed upon, and what it fails to sell on those terms it is bound to take and pay for itself. In case of a large transaction of this kind, a syndicate may be formed consisting of a number of bankers and banking houses, who agree together and with the other party concerned to carry the operation through. Each member of the syndicate binds himself to take a certain portion of the securities and to furnish his proportion of any cash that may be required in financing the opera- tion, and for this service a certain percentage of the amount is to be paid as a commission. . . . This device has been resorted to largely in the consolidation of industrial concerns in those combinations known as ' trusts ' and in floating new issues of railroad stocks or bonds. It transfers the risk from the corporations to the syndicates and concentrates and facilitates financial operations that are too large for one concern to handle." ^ What is true of the private banker also applies to the trust com- pany. It may become a member of underwriting syndicates, in which case its banking department only is concerned in the trans- action. When, however, the trust company either organizes a syndi- cate itself or is chosen as manager, the machinery of the corporate trust department may be called into play. The manager of an un- derwriting syndicate is usually chosen from among its members to take charge of the details of the transaction. For this service a commission is paid. The members of the syndicate may be called on for cash representing the value of unsbld securities, which are turned over to them, to be held subject to the call of the manager. Such " syndicated " securities cannot be disposed of until the ter- mination of the underwriting agreement, the manager alone being empowered to trade in them for the benefit of the syndicate as a •whole. When the syndicate is formed for the purchase and sale of bonds of recognized value, the issue is sometimes over-subscribed as soon as it is offered, and in this case the members may not be required to advance any money, and the manager's only duties are 1 " The Modern Bank." Amos Kidder Fislfe, p. 224 «* seq. 288 THE MODERN TRUST COMPANY to pay for the securities, receive payment from the purchasers, and distribute profits to the members of the syndicate. To float an un- desirable issue, stock jobbing operations ate sometimes resorted to, and the help of various bankers and brokers is enlisted to hold or advance the price of the new securities. Needless to say, this is business in which a trust company should not engage. The bookkeeping of syndicates consists of cash accounts repre- senting the operations of the syndicate as a whole and the interest of each of its members. A record is also kept of the securities received and disposed of. The operations of underwriting syndicates are usually carried on with the least possible amount of publicity, and the members are rarely given more than the barest statements of final results. If a syndicate is very successful, partial distributions of profits are made from time to time. When the securities h^ve all been sold, or the syndicate has been dissolved through the expiration of a time limit, the manager closes the accounts and distributes the final profits. If the syndicate has been unsuccessful, its termination may leave the members in possession of securities which cost them more than the market value and which cannot be disposed of except at a loss. DEPOSITARY UNDER PLANS OF REORGANIZATION While in theory the railroad mortgage is similar to that on the smallest dwelling house, the analogy ends, in practice, when a de- fault occurs. With the dwelling house, the lender forecloses the mortgage and effects the sale of the property. In the case of a railroad the value of the security depends on the system remaining intact. When interest defaults, a committee representing the security holders is usually formed and a plan of reorganization is agreed upon in order to prevent the disintegration of the system by foreclos- ure of the mortgage or mortgages secured on its component parts. The reorganization committee, either before or after formulating a plan for the rehabilitation of the property", calls for the deposit of the defaulted securities, most frequently with some trust company designated as depositary. In exchange for the securities, temporary receipts are given, good for a limited number of days only, and CORPORATE TRUST DEPARTMENT 289 these are later exchanged for the depositary's engraved certificates of deposit which are negotiable on the stock exchange. Trust companies usually have on hand a supply of such engraved certificates, on which the necessary details of each reorganization can be printed. The certificate specifies the kind and value of the security deposited and the terms under which the certificate is issued. It states that the trust company, as depositary under the plan of reorganization formulated by a committee whose names are recited, holds the securities in accordance with the terms of an agreement which is assented to by the security holders by the deposit of their stocks or bonds and acceptance of the certificates of deposit. Reorganizations may be made necessary either by a corporation's inability to meet fixed charges or by the consolidation of several corporations into a single company. In either case, the duty of the trust company acting as depositary is the same. The securities are virtually held in escrow, the reorganization committee and the bond- holders or stockholders being the other parties to the agreement. Reorganization committees are usually formed of individuals who are more or less directly interested in the securities affected by the default and whose names are a guarantee of good faith. The initiative in the formation of such protective committees is usually taken by the largest security holders, and the membership is indica- tive of the interests represented. The scheme of reorganization aims to bring the fixed charges safely within the earning power of the corporation and to determine equitably the rights and claims of all security holders. As important members of reorganization committees, the officers of a trust company are often called on to solve such problems. The corporate trust department is interested not so much in formulating plans of reorganization as in carrying out their pro- visions. For the protection of security holders prompt action may be necessary, and the mere physical work of receiving deposits is often very great. Sometimes the depositary gives notice that only a fixed number of lots or " schedules " of securities will be received each day. To expedite matters, a cursory exammation of the se- curities is made and sometimes the so-called five-day receipt is given which permits a more careful and thorough examination before the 2go THE MODERN TRUST CQMPANY certificate of deposit is issued. Just as much care is taken in receiv- ing stocks and bonds under plans of reorganization as when they are presented for transfer, because the title to the securities vests in the committee in accordance with the terms of the plan of reorganiza- tion, and in case of foreclosure and the issue of new securities in lieu of those surrendered, the transfers mast actually be made so as to carry out the required legal formalities. As each lot of securities is received it is listed and given an acces- sion number corresponding to the number of the temporary receipt. The securities forming each schedule are kept together, their final disposition depending on the provisions of the plan under which they are received. To be negotiable the engraved certificates of deposit are often required by stock exchange rules to be registered like certificates of stock. When assessments are called for, or distributions of principal or interest are made, the certificates of deposit are presented at the office of the trust company to have the proper indorsements stamped upon them. On the successful carrying through of the plan of reorganization, the certificates of deposit are returned to the trust company and the new securities are delivered in their place. For each reorganization, separate sheets are used. The reorgani- zation record bears the title of the account and of the trust company and the capacity in which it acts. The Jeft-hand page contains columns for the date of each deposit, the number of the certificate of deposit, the name of the owner, and the various classes of secu- rities deposited. On the right-hand page are columns headed by the titles of the new securities to be given in exchange and one in which receipts may be taken when the securities are actually de- livered. The book is printed and ruled to suit the requirements of each reorganization. The footings of the columns are used to prove the correctness of the distributions under each schedule. When a certificate of deposit is cancelled and one or more are issued in its place, the schedule represented by the cancelled certificate is ruled out and the new ones are entered. Assessments or distributions of cash or securities are entered in the reorganization record,, and the certificates of deposit are appropriately stamped. Each plan of reorganization may need the elaboration of fur- CORPORATE TRUST DEPARTMENT 291 ther details to meet its special requirements, and before the work is completed the trust company acting as depositary may be retained in other capacities, such as trustee, transfer agent, or registrar. ASSIGNEE AND RECEIVER When the affairs of a firm or corporation are placed in the care of a trust company as the result of insolvency or any other cause, the corporate trust department takes charge of the business. The appointment of the trust company may be made at the instance of the owners of the business who wish to protect their property, or at the instance of creditors who wish to protect their interests. It may be effected by deed of assignment, in which case the powers and duties of the trust company so appointed assignee are governed and regulated by, and in accordance with, the terms of such deed. If the business is to be wound up, the assignee's duties usually consist of collecting the debts due and collectible, and requiring creditors to prove their claims, which are scheduled for payment and met and paid in whole or ratably in part as the available assets permit. An assignee is held to strict accountability, and not only must use the best business judgment, but must act in strict compliance with legal requirements, frequently securing an opinion of counsel, or, in the case of certain acts, an order of court. As the expert knowledge of those who have been conducting the business is often of value, it is not unusual for the assignee to retain the services of such employees as are needed, and frequently a representative of a firm which is in liquidation is made a co-assignee. What has been said of the requirements for the trust company as assignee applies in part to the requirements imposed upon it as receiver. The term " receiver," however, is usually confined in its application to an appointee of a court. The object of a receivership is usually to tide an embarrassed enterprise over a period of diffi- culty. The business must be conducted intelligently, and needed capital sometimes supplied until times of greater prosperity or the successful carrying out of a plan of reorganization puts it on a sol- vent basis and makes possible the discharge of the receiver and the return of the property to its owners. The receiver is a ministerial 292 THE MODERN TRUST COMPANY officer of the appointing court, with no powers but those conferred upon it by such court. A trust company acting as receiver is better able than an individual to furnish additional capital, if amply secured, and thus successfully to meet the difficulties which withdrawal of credit and restricted capital have temporarily brought upon an otherwise prosperous business. The courts authorize the issue of receivers' certificates to provide funds for purchase of equipment and the proper maintenance of the property and conduct of- the business when the creditors are benefited by such expenditures. Such certificates may in certain cases be made a first lien on all as- sets, taking precedence even of mortgages and other secured obliga- tions. The receiver thus secures the capital necessary to make the property more productive and to secure the largest return from the business. In some trust companies a small committee of the board of directors is appointed to act with the officer in charge of the affairs of the involved business, and, where technical knowledge is required, the services of experts may also be secured. A set of double entry books is opened for each assigneeship and receivership, the controlling account alone appearing in the general books of the corporate trust department. According to the nature of the case, the business may be transacted at the office of the trust company or at that of the insolvent company. AGENT Trust companies as agents often take up lines of business which they either cannot or would not engage in on their own account. Thus, a trust company can act as agent for fire or life insurance com- panies, for water, gas, and other public service corporations. In new communities and where it is difficult to find responsible repre- sentatives, the trust company can often render efficient service and secure a steady income without risk by assuming agencies of various sorts. The books and methods employed depend on the duties to be performed, but conform as nearly as possible to the general system in use, with such auxiliary records as may be needed in each case. CORPORATE TRUST DEPARTMENT 293 ACCOUNTS Whether there be only one trust department or two, the book- keeping for both corporate and individual trusts can usually be com- bined. A single general ledger, journal, and cash book are used, and in these books the transactions of the two departments are separated by having .the necessary controlling accounts for each. The same division is maintained on the balance sheets. Whatever the capacity in which the trust department acts, each corporate account, like an individual trust, when received is given an accession number by which it is identified. The record of cor- porate trusts, which corresponds -to the record of individual trusts,^ contains an abstract sheet showing the details of each appointment, followed by other sheets on which are shown the securities held or such other facts as may result from the character of the account. When for convenience all trusteeships of corporation mortgages are grouped in a special volume, an abstract sheet should be inserted in its numerical place in the general record of corporate trusts, giving the title of the account and referring for further information to the special record of corporation mortgages. A blank form of abstract sheet is used, or a series of printed forms may be prepared to meet the requirements of the various capacities in' which the corporate trust department acts. The form adapted to trusteeships has already been described,^ as. well as the sheets which follow for records of bonds received, certified, and delivered, and of bonds paid, cancelled, and cremated. For invest- ments, sheets similar to those in the record of individual trusts are used. The corporate trust ledger is exactly like the individual trust ledger, and where there is only one trust department the accounts are kept in the same volume.' 1 For Record of Individual Trusts, see p. 338. 2 See p. 264. "3 For Individual Trust Ledger, see p. 348. 294 THE MODERN TRUST COMPANY COMPENSATION ^ When acting as trustee under corporation mortgages, a definite charge may be made for accepting the trusf, and a fixed amount per annum thereafter for paying coupons and performing other duties. For the certification of bonds it is usual to charge fifty cents per bond in the case of large issues, and one dollar for small issues. The figures, however, vary in dififerent places. The charge for certify- ing the bonds may be the only one, although an additional charge is usually made for counsel fees. In case of default and consequent foreclosure of the mortgage, extra payment is made to the trustee covering all services incident to the foreclosure. For the disbursement of sinking funds, interest, or coupons, the temporary use of the money may be considered adequate compen- sation, if the amount involved is large. A commission on the sum distributed or a fixed amount is charged when acting as fiscal agent, apart from duties in other capacities. For acting as registrar or as transfer agent it is usual to make a fixed charge per annum, based on the amount of labor involved. The transfer agent is usually paid about twice as much -as the registrar. Compensation for acting as manager of an underwriting syndicate may be a fixed sum or a com- mission, according to the provisions of the underwriting agreement. For acting as depositary under plans of reorganization, assignee, or receiver, a lump sum is usually paid covering all services. Agency work of various sorts is paid for in accordance with the usual practice in the business which is undertaken ; a fixed sum, or a fixed sum and a commission, or a commission only, may be received. The trust company is in a position to render valuable, and often indispensable, aid to its corporate clients. Large amounts being involved, the great railroad and industrial corporations are willing to pay well for such services. Corporate trust business has, conse- quently, been a profitable field for the trust companies. 1 See Appendix p. 472. CHAPTER XIV INDIVIDUAL TRUST DEPARTMENT GENERAL ORGANIZATION The cardinal principle of the trust department is its separation from the company's own affairs. A distinct organization is there- fore maintained for the conduct of trust business, the capital and surplus of the company supplying a guarantee that its obligations in a fiduciary capacity will be properly fulfilled. Whatever the difference in organization, functions, or management, trust companies in every part of the country unite on this general principle of not mingling their own affairs with their trust accounts. In many com- panies the trust department occupies entirely separate quarters, and has no connection with the banking department except that of depositor. Expenses and earnings are separately shown, and the situ- ation resolves itself into two distinct businesses conducted by the same president and directors under the authority of a single charter. The general organization of the trust department provides for the care of the different kinds of securities which are held, the making of investments, the receipt and disbursement of funds, and the proper accounting to the courts and the parties in interest. In a small or newly formed company the entire business of the individual trust department is usually in the hands of a few em- ployees who attend to all transactions affecting the estates in their control. As the department grows, however, great specialization becomes necessary, and in the largest companies separate divisions are organized for each part of the business. The plan of organization should always be one which permits of expansion. A single book in the small company is often the nucleus of the division which will later be evolved. The trust records should conform as nearly as possible to the company's general system of bookkeeping. A frequent statutory re- aps 296 THE MODERN TRUST COMPANY quirement is that trust funds and investments shall be kept separate and apart from the assets of the company, and that all investments made in a fiduciary capacity shall be so designated as to show clearly the trust or estate to which each investment belongs. This is a matter of careful record and description, but does not necessarily involve the actual separation of the securities in different safe deposit boxes nor of the accounts in a series of bound ledgers. Still less need one follow the example of a recently organized trust company where the bank examiner on his first visit asked for the balance of uninvested trust funds. To his amazement he was taken to the vault and shown a row of little pasteboard boxes in which the con- scientious trust officer was keeping the uninvested balances in cash, literally " separate and apart," to comply with the provisions of law ! APPOINTMENT The capacity in which the individual trust department acts depends upon the nature of the company's appointment, and the obligations assumed vary correspondingly. Unlike the banking and safe deposit departments, which stand in much the same relation to all their customers, the trust department plays many roles and cares for property of every sort, both real and personal. The functions of this department have already been described.^ The method of appointment and subsequent procedure will' here be briefly noted. When a client wishes to name the trust company as his executor, it is customary to have its counsel or legal officer draw the will, no charge being made for the safe-keeping of the document during the life of the testator. Laymen should be dissuaded from drawing their own wills, and urged always to secure legal advice so that errors may be rectified before it is -too late. If the will is not already in the possession of the executor named in the document, it should be delivered to the corporation or individual so designated, or to the proper officer of the probate court, immediately on the death of the testator. Wills are often left in safe deposit boxes or in the hands of counsel. If a decedent or a decedent's family is represented by a lawyer who brings the business to a trust company, it is usual for 1 See p. 10. INDIVIDUAL TRUST DEPARTMENT 297 the company to retain him as counsel for the estate. When the testator's personal counsel has drawn the #ill, his knowledge of the testator's private affairs is likely to prove of value in administering the estate. The first duty of the company when named as executor is to have the will probated. The document is deposited with the register of wills, or officer of a court having jurisdiction in the matter of decedents' estates, known in different states as the probate, surrogate's, or orphans' court. After the will is proved, letters testamentary, constituting the executor's authority to act, are granted and the appointment is advertised, debtors to the estate being notified that payment is due, and all persons who have claims against the estate being called upon to present them to the executor. Trust companies are not usually required to give bonds to secure the faithful performance of their duties whether acting as executor, adminis- trator, or trustee, their capital and surplus being considered a suffi- cient guarantee. In some places a special deposit of securities is made by these companies with the state authorities as an additional guarantee. One or more individuals are often named as co-executors with a trust company. In such cases the company generally takes charge of the securities, and does most if not all of the detail work, the other executors being consulted in matters of judgment, joining in the execution of documents when necessary, and sharing the com- missions. Immediately on securing possession of the decedent's property an inventory is made, and usually: an appraisement of the personal property. If the funds are sufficient, the executor settles the debts of the estate as promptly as possible. Some debts are commonly regarded by the law as preferred, — as funeral expenses, bills for physician's services rendered during the decedent's last ill- ness, — and these, where there are sufficient |unds, are paid at once. In the case of other debts and claims it is not unusual for the executor to wait until the statutory period has elapsed during which claims may be presented, in order that all possible claimants may be protected. When necessary the executor sells securities or other personal property in order to obtain the requisite cash. Inherit- ance, income and other taxes are paid as promptly as practicable to secure the advantage of any discounts allowable and to avoid the penalties imposed for delay. The payment of legacies follows, in 298 THE MODERN TRUST COMPANY conformity with the provisions of the will. To be properly protected the executor should, as a rule, defer the payment of legacies until such time as an account may be filed and Jtdjudicated by the proper court. Certificates of the appointment of the executor, obtained from the proper official or probate court, are used as evidence of authority to perform all acts necessary in the settlement of the estate. At the proper time, usually one year after the will is proved, the executor files an account for audit by the probate court. After audit the adjudication of the court is set forth in a decree passing upon the acts performed and directing such further acts as may be necessary on the part of the executor. The executor may account once or more often, according to the nature of the estate and the requirements of the beneficiaries and creditors. After settlement of the final account the executor, upon distribution of the balances re- maining in his hands and payment of the qourt costs, is discharged and relieved from further responsibility. The formal duties of an administrator afe almost identical with those of an executor. The power of appointment vests in the register of wills or official of the court having jurisdiction in the matter, in a manner which is usually prescribed by statute. When an individual dies intestate, or leaves a will in which no exfecutor is named, or when an executor declines to act, or dies before completing his duties as such, an administrator is appointed to settle the estate. If there is a will, the property is divided according to its provisions; otherwise, the order of inheritance is fixed by the intestate laws of the state, succession being based on relationship to the decedent, the wife and children having first right to the estate. The statutes of the various states differ in minor particulars, but the general procedure in administering estates Js very similar. After appointment the ad- ministrator qualifies, and, if an individual, gives a bond for the faith- ful performance of his duties. The administrator at once takes charge of the estate, and proceeds to administer it as in the case of an executorship, calling by advertisement for the presentation of claims, filing an inventory and appraisement, selling securities when necessary, paying debts, taxes, and legacies, and accounting to the court. The final distribution of the estate follows, with the dis- INDIVIDUAL TRUST DEPARTMENT 299 charge of the administrator on the satisfactory completion of his duties. Appointment as trustee originates in varifeus ways. When trusts are made under a will, the property is received from the executor on the settlement of the estate, and is held in accordance with the terms of the will for such purposes as it designateiS. The same corporation or individual is frequently, though not necessarily, named as executor and testamentary trustee, and in this case the property is first held in the former capacity and vests in the trustee on settlement of his account as executor. " The precise momeiit when his duties as an executor come to an end, and his duties as a trustee begin, is hard to ascertain. . . . The late Sir John Wickens, a very nice observer, used to tell his pupils that it invariably took place in the dead hours of the night, but so close an investigation is to be deprecated." ^ When no appointment is made by will, or the trustee named does not or cannot act, and the will makes no provision for appointing a substitute, the court having jurisdiction will usually fill the vacancy on the application of those interested. All trusts under will are subject to the jurisdiction of the proper court, to which accounting is made from time to time during the life of the trust or at all events upon its termination. The title to real estate vests in the trustee directly under the provisions of the will; that to personal property, on its transfer by the executor to the trustee. When there are several trustees, their authority must usually, unless the instrument creating the trust provides otherwise, be exercised jointly, unlike that of co-executors, each one of whom is vested with full powers and is competent to act independently. Individual trustees appointed by the courts must, as a rule, give bonds, which are not required of corporate trustees. The two interests in the trust estate are those of the trustee in whom the title to the property vests, and of the beneficiary for whom the trust is created, and who can compel the trustee to carry out its provisions. When appointment is made by deed, the trustee is governed by the terms of the agreement between the maker of the trust and itself. Such trust deeds may have all sorts of objects — from the wish to 1 " The Duties and Liabilities of Trustees," Augustine Birrell, p. 13. 300 THE MODERN TRUST COMPANY be relieved of responsibility in the care of property, to the making of a marriage settlement, or the setting aside of funds for charity or for support of those incompetent to manage their own affairs. Trusts under deed may be irrevocable or may contain a clause mak- ing them subject to amendment or termination at pleasure. They may be made for definite periods or to terminate on the occurrence of some event such as the death of a beneficiary. In the United States, except in the case of trusts for charities, trusts in perpetuity are prohibited by law. The " Community Trust " is a form of charitable trust, developed first in Cleveland, Ohio, under which gifts and bequests for public purposes are received and administered by a trust company in connection with an advisory board of citizens.^ The liabilities of a guardian are very similar to those assumed in the exercise of the powers already described. A trust company may be guardian of the person or estate of the minor, or of both. The guardian may be appointed by will, by deed, or by the court. The guardianship terminates on the ward's becoming of age. The prin- cipal duties of a guardian of the estate are to make an inventory of the property of the ward, make investments according to law, keep accurate records of all receipts and disbursements,— if necessary obtaining instructions from the court as to the provision it shall make for the education and support of the minor, — and on the latter's coming of age to render a final account for audit and approval, and to deliver the ward's estate in accordance with the decree of court. The offices of curator, committee, and conservator are much like that of guardian. The life of the trust varies according to the circumstanpes of each case. Thus a trust for a person of unsound mind ends on the beneficiary's regaining his reason. When the trust company acts as agent and attorney, the title to the property held or managed does not vest in it as in a trustee. Its appointment is derived from a simple request or agreement to per- form certain definite acts. This authority, which can be revoked at any time, may be in the form of a letter or a general or special power of attorney. Under a general power of attorney, authority is given 1 See " Trust Company Law,'" by John H. Scars, " Community Trusts." p. 427 ef seq. " Community Trusts," by F. H. Goff, Proceedings Trijst Company Section, American Bankers' Association, 1919. " The Modernization of tharity," by William P. Gest, Fidelity Trust Co., Philadelphia, 19^0. INDIVIDUAL TRUST DEPARTMENT 3OI to manage real estate, collect rents and other income and principal moneys, buy and sell securities, indorse checks, vote at meetings of corporations, sue and be sued — in short, to act generally on behalf of the principal or person represented. A special power is limited to a particular act or acts. If the power of attorney is to be recorded, — as a power to sell real estate or to satisfy a mortgage, — ■ or if certified copies are likely to be needed, it must be properly acknowledged in accordance with the requirements of the recording statutes. As assignee a trust company usually acts under appointment made by a debtor who by such action relinquishes the title to his property for the benefit of his creditors. The authority to act as receiver is derived from the debtor, or the court to which application has been made by a debtor or by creditors because of an embarrassed condi- tion of the debtor's affairs. In both cases the duty of the trust com- pany is to take charge of and manage the property in the interest of the creditors; in the case of a business it must carry it on until its difficulties are tided over, or else wind up its affairs. An escrow may be defined as an instrument under seal placed in the hands of a third person, to be delivered to the grantee upon the happening of certain conditions, upon which final delivery only the transmission of title is complete. As custodian or depositary the trust company accepts escrows, taking its authority in the form of written instructions in which all the parties in interest join. No responsibility is assumed beyond the care of the deed or instrument held, and its delivery in accordance with the instructions received. CARE OF STOCKS AND BONDS Upon the trust officer devolves the charge of all securities taken for trust accounts. For every item received he, or an assistant to whom he has delegated sufficient authority, should give a receipt describing both the security and the terms under which it is to be held. When the title to stocks and registered bonds vests in the trust company in some fiduciary capacity, they should be promptly trans- ferred, if this has not been done before they are received. Some- 302 THE MODERN TRUST COMPANY times the securities of an estate have been allowed to remain in the name of deceased relatives or other persons from whom they have been received or inherited, and if the legal representatives of the orig- inal owner have also died, transfers cannot Tse made until new letters of administration have been taken out. All such tangles should be straightened out while the facts of the case are fresh, and before there can be any danger of loss through inability to make a transfer. The record of individual trusts should give the exact wording to be used in registration, and care should be taken that all securities of the same estate are registered alike. After all necessary transfers have been made, and the stocks and bonds have been properly entered in the record of trust securities received and the record of individual trusts, they are ready to be indexed and put away in the vault. The question of the care of, and access to, trust securities is one which confronts the management of every trust company and has been solved in many ways, from the extreme of carelessness where no one is responsible and the keys are freely handed about, to the extreme of caution thus impressively stated : " The securities of each trust are kept separately in safe deposit boxes to which access may be had only by an assistant secretary accompanied by a vice- president, or by two vice-presidents, and no securities may be taken from the boxes except on a requisition of the trust department ap- proved by a vice-president." The ideal is to get the greatest possible degree of safety with the least possible amount of red tape. The client likes to know that his securities are abs,olutely safe, but he also likes to know that they can be quickly found and taken out when needed, and if he realizes that both the' capital and surplus of the com- pany are liable for loss occasioned by the negligence of its employees, he will be quite as much impressed by simple and accurate methods as by a ponderous system which breaks down in an emergency. In a small business where other safeguards are not practicable, joint access to the securities by two officers is usually advisable; but whenever the size of the company will warrant it, one officer should be put in charge of, the trust securities, and be held per- sonally responsible for their receipt, carfe, and disposition. He should be subordinate to the head of the trust department and should be appointed only after his fitness has been thoroughly proved. INDIVIDUAL TRUST DEP4rTMENT 303 Independent records kept in the trust department form the basis for examination of his work. An adequate salary paid to such an officer removes a fruitful source of temptation and is money well invested. The sum for which he is bonded in a surety company, although probably insignificant compared with the total value of the securities in his care, should approximate the amount which he could readily dispose of in case of dishonesty. This officer should have no authority to execute transfers of securities on behalf of the com- pany, examinations should be made at frequent intervals and without notice, and in his absence or disability his duties should devolve on a fellow-officer designated for the purpose. The board of directors should decide to which officers or other employees he may deliver securities, and in no case should he be perrnitted to make deliveries to any other individuals, whether in the employ of the company or not, unless so directed in writing by one of those authorized to make such requisition. The giving and taking of receipts should, without exception, be insisted on. This officer can ta:ke charge of cutting and collecting coupons, and can also watch for bond calls, and keep in touch with the values of the securities whiclr pass through his hands. The position is one of great responsibility and of considerable interest, for although it does not bring the holder into relation with the out- side public, it gives him a knowledge of securities and forms an excellent basis for future advancement. Even in a trust company, somebody must finally be trusted, and whether the business be large or small, the directors should see to it that an adequate and adaptable system is introduced, embodying the separation of the care of records and securities and the principle of personal responsibility. In the absence of the officer in charge of the trust securities, joint access should be required on the part of two other officers, one of whom keeps a record of the securities which are removed in his presence, while the other takes a receipt on their delivery. Later the officer responsible for the vault compares the receipts with the list. He holds a master key to the vault, while the two officers who act in his absence hold keys which must both be used to open the lock, thus preventing access by either one alone. 304 THE MODERN TRUST COMPANY INDEX OF SECURITIES A complete record of all securities held for trust accounts is kept in a card index. The main divisions of the index are : coupon bonds, stocks, registered loans, and miscellaneous securities. Under these divisions blue cards describing the security are arranged alpha- betically, and behind each blue card is a series of white cards show- BKtgBwiwV ■ ~~~ 'TDar l^ATABLC OFTEHtKTI TOTJU,«IIABEa OF»WAHBgJ> T<>rAl.B01lll»» yBiiron'Ai. mm II ■^PATENTED MAT Jft.fBW. ' LWMWV WUIIEAU- Index of Securities — Blue Card ing the separate holdings arranged alphabetically as to the name of the trust. The blue cards have projecting tabs which are cut in eight positions to show the various interest and dividend periods. Commencing at the left they are as follows : — " J. & J" for January and July " M. & N." for May and November " F. & A." for February and August " J. & D." for June and December " M. & S." for March and September " Irreg." for Irregular •' A. & O." for April and October Blank for non-interest and non-divi- dend-pajfing securities When coupons, interest, or dividends are payable quarterly, two blue cards are used. The card with a tab showing the earliest calendar INDIVIDUAL TRUST DEPARTMENT 305 month in which interest is paid comes first, dnd is followed by another indicating the later interest or dividend period. In the coupon bond section the blue card gives the title of the security, the interest periods, date of maturity, provisions as to re- demption, and other information if needed. The aggregate par value of all the individual holdings may also be noted in pencil on the blue card. On the white cards which follow, the top line is used for the \y Index of Securities — White Card title of the security, much abbreviated, and the first letters of the months when interest is paid. On the second line appear the number and name of the account and the par value of its holding. The same blue cards are used for coupon bonds, stocks, and registered loans. In the case of stocks, the title of the company, the par value of the shares, the dividend periods, how collected, and the total of the various holdings, are written on the blue cards. The back of the blue card is ruled for a record of the date and rate of dividends, and the way in which they are collected. The card is ruled in four sets of two vertical columns. In each set one column is for the date, and the other for the amount or rate of each dividend payment. Ten horizontal lines would give space for forty dividend periods. A diagonal line across each space, or eight Sets of vertical columns 3o6 THE MODERN TRUST COMPANY instead of four, would double the capacity of the card. The white cards show the number of shares held by each trust. With registered bonds, the title of the security, the interest periods, date of maturity, provisions as to redemption, and total amount held, are noted on the blue card as in the case of coupon bonds. On the back of the card the date and rate of intetrest payments are shown, and the method of their collection, exactly as in the record of stock dividends. The white cards give the par value of each estate's holding. The miscellaneous securities section is an exception to the others WithdrjiyiFn from the vault Qata Share s^ Bonds Des£iiptii»>. P»ry»lue in that it is arranged alphabetically according to the name of the account. The white cards only are used, headed by the number and name of the trust, while the rest of the card is given up to a descrip- tion of the various items. Among these will be found notes, due bills, judgments, life insurance policies, jewelry* membership certificates, deeds for pews, and a miscellaneous assortment of evidences of past, present, or future value, which cannot be classified in any other way. Securities of no value are recorded on buff cards of the same ruling as the white cards. The worthless securities themselves can for convenience be kept separately, so as to save time and labor at audits and in the transaction of current business. The record should, INDIVIDUAL TRUST DEPARTMENT 307 however, be kept in its proper place in the mdex, irrespective of the question of value. The color of the card at once indicates both the location and the character of the security.' Whenever a security is withdrawn front the vault, a receipt is taken. The receipt card shows the purpose for which withdrawn, the date, description and par value of the security, the number and name of the account to which it belongs, and the signature of the person to whom it was delivered. These cards are filed together in the index case, alphabetically, according to the title of the security. When all the securities of an account or a large number of them are withdrawn, it may, however, be easier to put several items on one card, and these receipts may be arranged according to the names of the trusts, in front of the others in the receipt index. At the time the receipt card is placed in the index, the card representing the holding of the account from which the securities have been taken is marked " out." If only part of the holding has been withdrawn, the amount taken is also noted in pencil. Thus the general index shows at all times what securities, for which the company is still liable, are in process of sale or for other reasons are Out of the vault. When securities which have been withdrawn temporarily are returned, the receipt card is destroyed and the word " out " is erased from the index card. These appear as " returns " in the record of trust securi- ties received. When securities have been sold or delivered, and the proper entries have been made in the trust ledger, the receipt card and the corresponding card in the securities index are destroyed, or if only part of the holding has been disposed of, the amount is deducted and the balance shown on the security card. The securi- ties delivered book is the authority for these entries.^ A maturity index is also kept, in which cards bearing the title and date of maturity of each bond issue are arranged chronologically. At the front of the index are cards representing overdue securities, then the securities falling due during the next twelve months, sepa- rated by guide cards. As each month passes, the guide card is moved back to the corresponding month of the following year. In this way the securities falling due at any time within a year are easily found. The total holdings of all securities maturing within 1 See p. 339. 308 THE MODERN TRUST COMPANY six months are shown on the maturity index, so that new invest- ments may be secured in good time or extension provisions be taken advantage of. The individual holdings are found by reference to the index of securities. ARRANGEMENT OF SECURITIES IN VAULT Many companies keep the securities of each estate in separate locked safe deposit boxes, or in boxes or envelopes in a special vault. An equally safe but less cumbersome system is based on the plan of keeping all securities flat in portfolios, and the holdings of each trust account distinctly marked with its number and name. The stocks, registered loans, and miscellaneous items belonging to each trust are kept together, as all the securities of one trust are more often wanted than are all the holdings of one security. The coupon bonds, on the other hand, are arranged primarily as to interest periods, and then as to security and trust account, because all the holdings of each issue have to be taken out at least twice a year for the purpose of cutting coupons. The stocks, miscellaneous securities, and registered loans are kept in portfolios made of two sheets of tar board, each i2-J"Xi9"- The estates are arranged in numerical order, each one separated from the next by a loose manila sheet i2"Xi8^", at the lower right- hand corner of which is the number and name of the account. The registration of stocks and loans shows the ownership of each security, and in addition the trust number is written in ink in the upper right-hand corner of each certificate. In each account, each class of securities is arranged alphabetically, first stocks, then miscellaneous securities, then registered bonds. One portfolio usually holds a num- ber of trusts, although a very large estate may need several port- folios. The portfolios are held together by* loose straps of webbing with ordinary buckles. So as to be readily accessible, they are kept on separate steel shelves 2f" apart. A label on the outside of the closet door gives the numbers of the trusts within, and on the inside' of the door is another label showing the numbers of the trust ac- counts contained in each portfolio. Securities of no value are kept in a separate set of portfolios, INDIVIDUAL TRUST DEPARTMENT 309 the arrangement being identical with that just described except that worthless coupon bonds are kept with the other " bad " securities. As apparently worthless securities occasionally develop unexpected value, it is necessary to preserve the certificates, and keep accurate records of them. For instance, a few years ago when the electric railway was introduced, many worthless turnpike stocks became sud- denly valuable because the electric railway companies, not possessing the right of eminent domain like the railroards, were obliged in many instances to purchase from the turnpike companies the rights of way still owned by these old corporations. The arrangement of the coupon bonds in the vault is first as to interest periods. On account of the different sizes of shelf and portfolio that are needed, each interest period is subdivided into flat and book bonds. Under these subdivisions the bonds are arranged alphabetically by the name of the security. Flat bonds have bond and coupons printed or engraved on the same large sheet. In book bonds the bond and the coupons are on separate smaller sheets bound together. All coupon bonds are spread out in portfolios of loose tar boards with manila sheets to separate the various issues. For flat bonds the tar boards are I9"X28" and the manila sheets i8"X27". The portfolios are large, and it is convenient to have holes punched at one edge of the tar boards and manila sheets, and the sheets eyeleted, so that a tape or cord may be used as a back to hold the papers in position when the leaves are turned. Straps of webbing hold each portfolio together. Each manila sheet is numbered consecutively, and on the outside of the portfolio is pasted an alphabetical list of the securities, showing the number of the sheet on which the bonds will be found. All the coupon bonds of the same issue are together and are arranged in order of trust numbers, the estate with the lowest number being on the top of the pile. As no writing is allowed on coupon bonds, the ownership is indicated by a small label gummed at the upper edge and attached to one corner of the back of the bond. The label gives the name of the security, number of bonds, par value, interest period, and number and name of the trust. If a trust account owns more than one bond of a kind, the label is attached to the uppermost bond, and the others have the number of the trust 310 THE MODERN TRUST C0!MPANY pencilled at the same point on the margin. Each bond is recorded by its number in the record of individual trusts, and thus a perfect system of identification of ownership is established. Book coupon bonds are cared for exactly like the flat bojods, except that the size of the tar boards is ioJ"Xi5i", and of the manila sheets io"Xi4i"- To make the portfolios of uniform shape, the bonds are piled, some with their bindings turned to one end of the portfolio and some to the other. Owing to the size and weight of the portfolios, each one COUPOK BOND IiABEIi Trust No. $ Bonds OF January &JULY Owner should be kept on a roller shelf. The shelves should be 4^" apart for flat portfolios and 6" apart for the book portfolios. On the outside of each closet door is a label showing the interest period of the bonds, and whether flat or book. Inside the door, a label gives the alphabetical divisions contained in each portfolio. As a help in finding coupon bonds it may be convenient to keep in the vault a small card index arranged alphabetically under the names of the securities, showing to which interest periods they belong and whether they are flat or book bonds. The arrangement which has been described, although a departure from the traditional method, has been proved by experience to be thoroughly satisfactory. The portfolios lehd themselves readily to expansion or contraction, and even when readjustments have to be made, owing to the receipt of large numbers of new securities or the delivery of old ones, the process is a simple one. No more space is needed, sometimes even less, than under the old-fashioned systems. A security is always quickly and easily found because there is only one place in the vault where it can belong, and the papers are kept in far better condition than when folded. In the cutting of coupons alone, an immense amount of time and trouble is saved if the bonds INDIVIDUAL TRUST DEPARTMENT 311 do not have to be unfolded or unrolled. Examination of assets is also greatly facilitated. The system can be adapted to the needs of the smallest as well as of the largest company. COLLECTION OF INTEREST AND DIVIDENDS The index of securities is the record from which data are pro- cured for the collection and credit of interest receipts. Coupons are promises to pay to the bearer on a given date a specified sum representing the amount of interest then due on the bonds to which they are attached. Coupon bonds can generally be registered as to principal if the owner so desires, and occasionally the coupons are payable only to the order of the registered owner of the bond. As a preliminary to the cutting of coupons, a coupon collection list is each month made up from the index of coupon bonds. Using the tabs of the blue cards as a guide, an alphabetical list is prepared of the name and total holding of each security whose coupons will fall due at the next interest period. On the same sheet, spaces are pro- vided in which to record the number of coupons, amount of each, deductions for taxes, net amount, where and when payable, date of payment, and remarks. The list is turned over to the person whose duty it is to cut the coupons, and all the other entries, excepting the date of payment, are made as the coupons are cut. In cutting cou- pons, the fewer who take part the better, and if the officer in charge of the vault cuts them all himself, the necessity of verifying the se- curities as they are returned to the vault is obviated and there is also less danger of coupons being mutilated and payment refused. A steel coupon cutter is used, having two sides at right angles, each about 4^" long and i^" wide. At the point of the right angle is a raised knob by which the cutter is firmly held in the left hand, its inside sharpened edges at the outer margin of the coupon, while the coupon is detached by a quick pull of the right hand. Only one cou- pon should be cut at a time, as bonds are not always evenly trimmed, and coupons of the same date may not lie exactly under each other. As soon as the coupons are cut, they are counted and bundled in packages of not more than one hundred e^ch, and the number is i i 8 8 . H 1 1 1 3 1 1 H iI2 INDIVIDUAL TRUST DEPARTMENT 313 written in pencil on each package. They 4re then placed together with the proper income tax slips, in envelopes on which are indorsed the name, number and amount of the coupons, the date and place of payment, and the name of the depositing trust company. About ten days before the maturity of the coupons they are deposited in bank for collection. The collecting agency may be the banking depart- ment of the trust company, or another bank. According to local usage, the envelopes may be passed through the collecting agency either sealed or open. For coupons payable at local ofifices and collected by messengers, linen-lined envelopes 3^"X6i" can be used again and again. In this case the title, interest period, and place of payment are written in ink, the number, value of each coupon, and total amount are shown in pencil, so that the figures can be changed at successive interest periods. At the same time that the coupon collection sheet is prepared, credit slips are written up from the index of coupon bonds. These give the title of the security at the top of the slip and below an alpha- betical list of estates, the par value of each holding, and the amount of the coupons due to each. A convenient size for such a credit slip is 6"Xi2". As the slips can be corrected and used at successive interest periods, space should be left for new accounts. The totals of each credit slip must correspond with the par value of principal and net amount of the coupons as shown by the corre- sponding item of the collection sheet. As each item is reported paid, the date of payment is recorded on the collection sheet, the cash or due bill received from the banking department is handed to the trust department receiving teller, and he passes the credit slip to the bookkeepers in order to distribute the proceeds of the coupons to the proper accounts. As a matter of con- venience it is well to have a coupon credit book ruled in the same way as the credit slips, and to show in it the total amount credited, referring to the slips for the individual items. When a single item is credited, or when credits are made at regular times, the details can be written in the credit book itself without the use of a slip. When coupon bonds fall due or are called for payment, this fact is noted on both the collection sheet and credit slip, the amounts 314 THE MODERN TRUST COMPANY of principal and interest being shown separately. The bonds are collected with the coupons. If they are registered as to principal, the necessary power of attorney transferring them to bearer is attached. Redemption provisions are noted on the security index and should be examined at each interest period. Issues of bonds subject to re- demption must be carefully kept track of, for there is constant danger of missing a call and learning only through "the return of the current coupons that the bond was drawn for payment, and interest ceased six months before. The financial papers should be watched for ad- vertisements of calls, and letters should be written to obtain informa- tion which cannot be otherwise secured. It is also wise to have small printed slips which can be put with the coupons, asking that notice be sent if any bonds of the issue have been called. In the collection of interest on registered loans, the index of secu- rities provides data for filling out a collection sheet with the title of the security, amount of principal, rate of interest, gross amount, deductions for tax, and net amount. Columns follow showing where, how, and when payable, date paid, and other remarks. In most cases registered interest checks are received by mail. The remainder are collected by messenger or by the deposit of interest orders through bank. Credit slips and a credit book are used, and the paid items are treated exactly as in the case of coupons. Regis- tered bonds due or called for payment must always be accompanied by the proper power of attorney. When registered loans are called for payment, notice is sometimes sent directly to the owner, which of course cannot be done in the case of bearer securities. The collection of dividends is like that of registered interest. The collection sheet shows the name of the stock, total shares held, rate paid, total amount, deductions for tax, and net amount ; where, how, and when payable, date paid, and other retAarks. The credit slips show the number of shares held by each estate, the rate and net amount of the dividends. Irregular and non-dividend-paying stocks must be carefully watched in order not to overlook dividend pay- ments. The date and rate of each dividepd are recorded on the back of the description card in the security index. Notes and other items not falling into the general classes already INDIVIDUAL TRUST DEPARTMENT 315 described are collected by the same methods as registered securities. Each item has to be treated separately, however, and in the case of notes it may be necessary to have them protested if not paid. Either separate books or the same credit book can be used for coupons, interest on registered loans, dividends, notes, etc. When coupons are returned unpaid, they are attached to the bonds. A record of all coupons and registered interest in default is kept and, when necessary, steps are taken to protect the owners. CARE OF MORTGAGES First mortgage loans on improved city real estate with ample margin are among the safest investments that a trust company can secure. It is, however, necessary to ascertain in every case not only the value of the real estate, but its freedom from encumbrances and the validity of the title. Compensation for the time and labor in- volved in negotiating a mortgage loan is found in the fact that the rate of interest is likely to be higher than that yielded by other equally secure investments. The first step before investing in a bond and mortgage upon real estate is to obtain a full knowledge of the property which is to secure the loan. It is usual to require the applicant to fill out a printed form giving details as to the amount of the loan desired, the period for ■which it is to run and the rate of interest, the name of the maker of the mortgage, the location of the property, its size and the improve- ments on it, the value of both ground and improvements, the rental value, and the amount for which the property is assessed for taxa- tion. Other questions cover encumbrances which might affect the title, such as municipal improvements in the neighborhood and al- ready existing liens. ■ To verify this information, the property is examined by the trust company's experts, and their reports, based on personal inspection and knowledge of real estate values, serve as a guide in the final acceptance or rejection of the mortgage. The appraisal of real estate has, in some trust companies which specialize in mortgage loans, become a matter of such importance that special facilities have been developed ih order to keep in touch 3i6 THE MODERN TRUST COMPANY with real estate values in widely separated localities where loans are made. Statistical information, covering population, industry and commerce as well as more specific facts jn regard to sales, mort- gages, building permits and leases, is secured and kept up to date. Trained experts make personal inspections and check rentals and values against the average experience of similar properties in the same locality and elsewhere. An appraisal not qualified by informa- tion in regard to surrounding conditions and future prospects may be of little value or even misleading. The conclusions of the appraisers are recorded on a form including the following facts : Location Dimensions of Land Dimensions x Height -< ^ (Above Sidewalk [Below Sidewalk Stories Size of Basement Material Building : ' Occupancy Type of Construction - Condition ._ Improvements Adequate ? Improvements Suitable to Location ? General Character of Location ? In our opinion the present value of the property is as follows: Land? ml .....perFr. ft $ : per Sq. ft. Building $ @ c. per Cu. ft. Total $ Remarks : Applications may be made for loans to be secured by mortgage to be placed on the owner's unencumbered property, or by a purchase money mortgage, or by an already existing mortgage to be assigned to the company. In every case, the sarne general procedure is followed in the examination of the title and valuation of the prop- erty. When an existing mortgage is purchased, an assignment is made by the mortgagee who is usually required to furnish a certifi- cate of " no defence " or " no set-off " from the mortgagor, admitting the existence of the debt. In some parts of the United States it is. customary to execute a INDIVIDUAL TRUST DEPARTMENT 317 note for the amount of the loan, often with interest coupons attached, and a trust deed conveying real property as collateral security. The interest coupons and principal note are generally payable at the office of the bank, trust company, or other institution which negotiated the loan. Each change in ownership of the obligation requires the exe- cution of an assignment which is usually placed on record in the county in which the property is located. Mortgage loans of this character are more easily negotiated when the note and the trust deed conveying the property as collateral are issued in the name of a trustee who authenticates the note and keeps possession of the trust deed, attending to all details as in the case of a corporate bond issue. The interest notes or coupons are collected through bank as they mature and are payable at the office of the trustee. On payment of all the interest and principal notes, the borrower obtains from the trustee a release of the property which had been conveyed as collateral security. The exact method in each state varies according to local practice and legal requirements. In making real estate loans, most trust companies use their own standard forms of bond and mortgage, approved by counsel. On the acceptance of an application for a inortgage loan, the owner of the property or mortgagor executes a proper instrument evidencing his indebtedness and a mortgage covering the real estate as security for the loan. Settlement is made, and at the same time the mortgage is placed on record in the proper office for the recording of deeds. Until satisfied of record, the mortgage rehiains a lien against the property. A brief of title and counsel's opinion, or the policy of a title insurance company, is usually required. A title insurance com- pany may take charge of drawing the papers, making settlement, and recording the mortgage. When a trust company has a title insurance department, settlements in connection with mortgage loans are made through this department. The borrower pays the conveyancing charges and cost of the title insurance policy. Mortgages should be taken in the names of the accounts for which they are purchased. A mortgage too large to be taken by a single account, may be made to the trust company as trustee, to secure an issue of bonds, either registered or coupon, which are allotted to the various accounts for which the investment is made. Or both 3i8 THE MODERN TRUST COMPANY bond and mortgage may be executed in the name of the trust com- pany as trustee, and the company may issue its declarations of trust specifying the proportion of the loan to which each account is entitled. Some companies are content to take such mortgages in their own name as trustee, simply showing by a distribution in the mortgage ledger the amounts of principal and interesf belonging to the various accounts for which the mortgage is held. If part of the mortgage loan is secured by improvements upon the real estate, it is customary to require the maker of the mortgage to carry sufficient fire insurance to cover the amount so secured. The policies are generally made payable to the mortgagee, as his in- terest may appear in case of loss. Unpaid taxes being generally a prior lien against real estate, it is necessary to know that all taxes are regularly paid. A clause in the mortgage generally provides that receipted tax bills shall be exhibited annually. Bills for interest are sent at regular periods and receipts are given covering each payment. When mortgage loans mature, if not paid off they may be allowed to run on as demand loans, payable at the pleasure of either borrower or lender, or thqy may be extended for a definite or indefinite period, according to special agreement. Many mortgage loans are allowed to run on after maturity, and agreements as to rate of interest and payments on account of principal are entered into according to the exigencies of the case. All payments on account of principal should be endorsed on the bond or note, so that it shall at all times igree with the books of record. After the final payment is made, the mortgage is satisfied of record, it being customary for the satisfatction fee to be paid by the mortgagor. In case of non-payment of interest or jirincipal, or failure to comply with any other provision of the mortgage, the papers are placed in the hands of counsel, and suit is "entered to foreclose the mortgage. The company which is too liberal in the amounts of its loans is likely, in times of depression, to find many foreclosure suits on its hands and to be forced to take title to properties which have to be held indefinitely before they can be disposed of. Mortgage papers are matters of public record, and therefore their II S ll H •J3 1 > ■H c s fe A J J 'z o p. K iS '^ p. p ■s 1 f C ! f > 1 gl ■rt Ji 1 P ill?- 1 a 1 , ", ! i i 11 li a ( ° is a •§ H -s ^ 1 i 1 —^ — H. ■-s n a a •« 1 -a —" * f, ^ K 3 ^ B ■B 1 — tk 5 ^ a Tl ^ ^ L_- * — ^ L— ™ INDIVIDUAL TRUST DEPARTMENT 319 care does not require quite so many precautions against loss as do stocks and bonds not of public record. They should be kept in a vault if possible, or at least in locked metal cases. Each mortgage should be placed in a separate box or collapsible envelope, and should be filed according to the number of the account to which it belongs. If pasteboard boxes are used, they should open at the end, in the form of a slide fitting into a cover, dnd have the number of the account written on the exposed end of the box. The boxes should be arranged on shelves. If envelopes are used, they should be placed upright in files — preferably metal files. On each envelope the number of the account and of the mortgage is indorsed, and on the outside of the file the numbers of the. accounts included in it. Mortgages may also be kept in a vertical file or in portfolios. The mortgage ledger is the volume in which a complete record of each mortgage loan is kept. Either a loose-leaf book or cards can conveniently be used. Each mortgage has a separate page or card. At the top is shown the number and name of the trust account which holds the investment, followed by a description of the mortgage. This includes the name and address of the interest payer, the name of the mortgagor, a description of the property and improvements including valuations, the date of maturity, the interest rate and periods, by whom the state tax, if any, is paid, and the date and place of record of the mortgage. This description can be much elaborated, but a concise abstract of the salient facts is iepough. A short section follows in which cash principal transactions are recorded. The col- umns are for the date, amount paid, balance, date, and amount re- ceived. The lower part of the front and the" entire back of the sheet or card are devoted to interest payments. Two columns show the date and amount of interest accrued; two, the date and amount of the payments ; and a column headed " Tax receipts shown for " pro- vides space for entering the year of the paid tax bills which have been submitted for inspection. In places where county, city, borough, school, road, or other local taxes are paid to diflferent collectors, and all, when unpaid, are liens against the property, it may be necessary to have a column for each tax. The interest columns take but half the width of a page, and are repeated so as to save space and provide for enough entries to cover 320 THE MODERN TRUST COMPANY the life of most mortgage loans. When a loose-leaf ledger is used, the sheets are sorted according to interest periods, and each period is arranged alphabetically by the names of interest payers. A card ledger, with projecting tabs to show the months in which the interest payments fall due, makes it possible to file all the cards alphabetically under the names of the interest payers, and saves having a separate index for this purpose, while the tabs serve as an index to interest periods. Sheets or cards containing closed accounts are placed in a transfer binder or separate index, so that only live accounts appear in the active ledger. Closed accounts are filed by the names of the interest payers. When settlement is to be made for a mortgage, a charge slip is filled out, authorizing the teller to issue a check in payment. This slip becomes a voucher in his settlement. It bears the date, number, and name of the account charged, the name of the mortgagor, amount paid, location of the property, name and address of the interest payer, and the signature of the proper officer. It also bears the following memoranda: posted in individual trust ledger; posted in mortgage ledger ; entered in general cash book ; entered in record of securities received. As each of these postings is made*, the bookkeeper initials the slip. These mortgage charge slips should correspond in size with all other charge and credit slips used. Bills and credit slips representing principal and interest receipts are written up by the mortgage bookkeeper from the ledger in ad- vance. Both bills and credit slips contain the same information, and by using a carbon sheet they can be made out together. The bills should fit one of the company's standard envelopes without folding, and bear a notice that the bill must be presented at the trust depart- ment receiving tellers' window when payment is made. A statement of the necessity for prompt payment may be added. The credit slips are turned over to the receiving teller and are arranged by due dates and, under each datef, according to the names of the payers. When the bill is presented for payment, the corre- sponding credit slip is removed from the teller's index, and after verification the bill is receipted and the credit slip is stamped paid. INDIVIDUAL TRUST DEPARTMENT 321 The slip then serves as a voucher and the source from which the later entries are made. AVhen the loan is represented by a note with coupons attached, no bills are sent but instead the coupons are cdt and forwarded for col- lection. The credit slips are, however, made out and used in the same way. Principal and interest receipts are distinguished by different colors of paper or ink. The bill and credit slip for principal items show the name and address of the payer, date due, location of property, amount of payment, number and name of trust account, and posting memoranda covering the individual trust ledger, mortgage ledger, general cash book, and record of securities delivered. The bill and credit slip for interest specify the name and address of the payer, the period covered by the payment, the date on which it falls due, its amount, the location of the mortgaged property, and the number and name of the trust account. The posting memoranda cover the individual trust ledger and mortgdge ledger. The separate items of interest receipts are not extended in the general cash book, only the total, as shown by the teller's 'settlement, being posted there. A scratcher is used by the mortgage bookkeeper in which all receipts, both principal and income, are listed. The book is ruled to show the date and name of payer with two columns for principal and interest respectively. The mortgage bookkeeper's totals settle with those of the teller. All postings are made from the credit slips direct. Each day's work should, however, be checked back from the scratcher to the mortgage ledger to verify the entries. In addition to the books of record, it is well to have an index of mortgagors combined with a cross index of interest payers on differ- ent colored cards filed together alphabetically by names. The mort- gagor cards give the name of the mortgagor, location of the property, name of the interest payer and the interest periods. On the payer's cards are the payer's name and address, followed by the location of the property, the name of the mortgagor, and the interest periods. If the mortgage ledger is kept on cards under the names of payers, this cross index of payers is not needed. 322 THE MODERN TRUST COMPANY A location index is useful in finding mortgages when the names are not known and in showing the number of mortgage loans in each locality. It is arranged primarily as to states and is subdi- vided according to counties, towns, and streets. The same informa- tion is given as in the index of mortgagors, but with the location of the property on the top line. An index showing the maturity of each mortgage loan is also kept. It contains the same information as the indexes already described. By reference to the maturity index the question of demanding pay- ment or executing an extension agreement is brought up for decision, bills for principal payments are sent at the proper time, and overdue items are kept track of. Columns to be initialled in the record of trust securities received and record of trust securities delivered in- sure the making of entries in the indexes. Records of fire insurance policies held as collateral security with mortgages can be kept in the mortgage ledger, supplemented by an insurance expiration index, or if the mortgage business is large, sepa- rate insurance records may be necessary. The policies can be kept with the mortgage papers if the business is small; in larger companies a separate arrangement is preferable.^ The ground rent which is found in Pennsylvania is " a rent re- served to himself and his heirs by the grantor of land in fee simple, out of the land conveyed." It is considered as real estate. The making of irredeemable ground rents is no longer permitted in Penn- sylvania. The Pennsylvania Act of June 24, 1885, provides that thereafter " no irredeemable or non-extingujshable ground rent shall be charged upon or be reserved out of or for any land within " that commonwealth, and that the period for the extinguishment of any such rent shall not be postponed " longer than twenty-one years, or a life or lives in being." The ground-rent system in force in Maryland " differs from that of Pennsylvania in that the term is used to designate the rent reserved upon lease for ninety-nine years, renewable forever." The bookkeeping for ground rents is practically the same as for mortgages, and may be done in the same department, 1 See p. 331, INDIVIDUAL TRUST DEPARTMENT 323 CARE OF REAL ESTATE In a company which controls a small number of properties, the care of real estate may be combined with that of personal property, only the system of records being kept distinct. With increase in business comes the establishment of a real estate department, some- times entirely separate from the rest of the individual trust depart- ment. However distinct its organization may be, the real estate de- partment should nevertheless be considered a division of the indi- vidual trust department and be in charge of a real estate officer re- sponsible to the trust officer. The real estate officer should be an expert in land values. His position is no sinecure, for he represents the owner, who usually is anxious for larger returns on his investment, while the tenants clamor for repairs, improvements, and reduction of rent, and cannot be ignored if the company's good name as landlord is to be preserved. It would seem that no real estate officer can hope to be popular with all those with whom he has to deal, but a reputation for being just is at least within his reach. He should be supported by an office force adequate to care for the many details connected with managing real estate. Nothing does more to make a satisfied tenant than the knowl- edge that his requests will receive prompt and considerate attention. If many of the tenants are foreigners, it is advantageous to have some employees who can speak to them in their own languages. Real estate for which the company acts as agent is managed according to the directions of the owners. When acting as a trustee, the company is governed by the nature of its appointment and au- thority. The law of real estate, as distinct from that of personal property, is a large field where much special knowledge is required. When the power of sale is not specifically given in the will or deed, the executor or trustee can sell, if at all, otily with the approval of the court. It is the duty of the real estate department to pay taxes and keep improved properties insured, rented, and in good order ; to preserve unimproved properties intact and prevent trespass. As soon as a property is placed in the hands of the trust company, notice of its 324 THE MODERN TRUST COMPANY appointment is given the tenants and an examination is made, of which a full record is kept. If leases are assigned to the trust com- pany, an abstract of each one should be entered in the real estate ledger. It should be ascertained at once what charges lie against the premises, — interest, taxes, municipal or other claims, — in order that proper provision may be made for their payment. If the assess- ment of taxes is excessive, appropriate steps should be taken to ob- tain a reduction. Taxes should be paid as the circumstances of the estate will allow, so as to take the best advantage of possible dis- counts and escape penalties for non-payment. If the improvements are already insured, the policies should be examined to determine the standing of the companies, whether the amount carried is adequate, and whether the papers are in proper form. If the property is un- insured or the amount is insufficient, new policies should be promptly taken out. When properties are vacant, it is not enough to hang out a " To rent " sign and wait until chance brings along a customer. Many methods are now used for coming in touch with prospective tenants, and the offerings of the real estate departme,nt are often more widely advertised than any other branch of the coifipany's business. Lists describing all properties for sale and rent should be printed at fre- quent intervals. All inquiries should be promptly answered, and followed up when advisable. Newspaper advertising can also be made effective. The trust company's reputation as a landlord may be a potent factor in the success of its real estate business. Improved real estate should always be kept in as good condition as when received. In the long run, it is to the owner's advantage to keep buildings in thor- ough repair, the actual amount of money spent for maintenance or for improvements depending upon the character of the property and its tenants, and the purposes for which it is used. Slum properties may require a very different policy as to repairs from the better classes of houses. A request coming after the first warm days of spring, to " Please send a blumbber to figs our bath-tup, it soon be time now to use him agen," may well make one hesitate before making elaborate repairs when the bath-tub has probably served as a coal-bin all through the winter months. INDIVIDUAL TRUST DEPARTMENT 325 All complaints should be promptly investigated, and care should be taken not to allow the property to deteriorate through lack of inspection. Inspectors should have practical knowledge which will enable them to report intelligently on the advisability of making repairs, alterations, or improvements, as well as on the character of the completed work. Except in cases of emergency, competitive bids should be secured, care being taken that the specifications are uniform and that none but trustworthy firms are permitted to esti- mate. So far as possible, all requests from tenants and all orders for work should be in writing. A written report from the tenant as to the satisfactory completion of minor repairs will often obviate the necessity of an inspection. Rent bills should be mailed, and tenants should be encouraged to pay by check in the same way. Some, however, prefer to call in person or want receipts in a rent book instead of using loose bills. In the case of small properties, a collector must usually be sent to call for the rent as it becomes due. When properties are not within reach, it is generally necessary to employ sub-agents both to collect rents and attend to repairs. It is important to keep records to show the income received from each property, the repairs asked for and made, and other pertinent facts. Out of the gross income received, fixed charges such as taxes, assessments, insurance, interest on mortgages, as well as the cost of repairs, must be deducted in order to determine the net return from the property. Large building operations are often conducted either as agent for the owner or to develop properties held as trustee. In such cases the trust company, if properly protected, may often make large advances greatly to the advantage of the estate and without risk to itself. The lease forms a contract between landlord and tenant, and gov- erns their actions. ^ It is usually executed in duplicate, one copy being retaiiied by each. Its terms define in detail the rights and duties of both parties. The leases are best filed by the number of the trust account and under each account by the names of the tenants. The trust company must use reasonable diligence in ascertaining whether the tenant complies with the terms of the lease. When properties 326 THE MODERN TRUST COMPANY are used for unlawful purposes, the landlord may be held responsible. It is well to obtain as much information as possible in regard to the character and responsibility of tenants, before renting, as the process of eviction may be troublesome and costly. Trust companies are often made trustees for burial lot funds, the principal to be kept intact and the income tb be used for the care of the lots. In such cases, the real estate department makes periodical inspections and attends to the maintenance of lots and monuments. The correspondence of the real estate department is usually large and space and labor can be saved by filing together all letters in regard to each property. Many general letters of only passing value, such as requests for rent lists, may be filed by subjects and so sifted out from the more important correspondence.^ Title papers, being bulky and of various shapes and sizes, are best kept in heavy expansion envelopes, those belonging to each property in a separate envelope. The envelopes are filed by the numbers of the trusts to which they belong, as in the case of mortgages. Title papers are recorded in accordance with the laws of the state in which the real estate is located. A new deed is prepared, executed, ac- knowledged, and recorded, with each change of ownership of real estate, except when upon the death of the owner the title to property passes by will or under the intestate laws,„ or where as in Illinois, New York and some seventeen other states the Torrens system of registration of titles is in optional use.^ 1 See Correspondence or Mail Room, p. 440. 2 " Very early in her history South Australia passed a law relating to land for which the other six colonies still owe her a debt of gratitude. The Torrens Land Transfer Act, placed on the statute-book in 1858, sprang from the brain of an intelligent Collec- tor of Customs at Adelaide, who. having seen in early life something of the ways of the English Court of Chancery, had come to hold very strong views about exorbitant legal charges. He thought out a plan by which a system of registered proprietorship should cheapen and simplify future dealings with land. Jhis he submitted to the most eminent local legal authorities, and they threw cold water upon it. Not disheartened, Torrens found less learned advisers who thought better of it. An agitation in its favour was begun, and after a short contest with the legal profession, the laymen won the day. After watching it at work in South Australia, colony after colony adopted the Torrens law with but little change. Now forty years have passed, and the colonial system of land transfer is still in substance the plan hit upon by the ingenious customs officer. Everywhere it works smoothly and usefully. Land registry ofKces are open in every large district. Any proprietor may apply to register his land in one of these. After proper investigation by the public examiner of titles, his title and the description of his land are inscribed in one of the office ledgers. From that moment he is a regis- tered proprietor, and any innocent purchaser from him has an indefeasible title. There- ■tter any person dealing with the land has merely to send an agent to the registry office. INDIVIDUAL TRUST DEPARTMENT 327 The rent ledger, preferably a loose-leaf book, contains a sheet for each property, or if there are several tenants in any one property, a sheet for each. It is arranged primarily by the number of the trust account, then according to properties and tenants. At the head of each sheet appear the number and name of the trust and the location of the property, then the name of the tenant and the terms of the lease. The tenant's name and facts about the lease take only one line, and it is well to provide at least six lines so that a new sheet need not be made out every time the tenant changes. The cash section is divided into debits and credits. Under debits appear the date, description of the item, and a cash column; under credits, date and a cash column. The sheet is ruled and printed on both sides. The debits and credits fill only half the width of the page and can be repeated. A sheet is inserted in the ledger on receipt of each new property, whether improved or unimproved, rented or vacamt. Only live matter is contained in the book. Sheets for properties which have gone out of the company's possession, and sheets which have been replaced by new ones, are filed in a transfer binder. In the collection of rents there is more opportunity for crooked work than in any other part of a trust company's business. Any one who has access to the rent ledger, or who can hold up a credit slip on its way from the real estate bookkeeper to the individual trust book- keeper, is in a position to collect and retain rents. The trouble lies in the difficulty of maintaining a rent roll on a double entry basis. The trust company is quite properly unwilling to make itself respon- sible for rents until they are collected, and the large number of cor- recting entries for changes in rental, bad debts, etc., which would follow the adoption of a double entry system, makes it almost im- practicable. A system of internal checks should be faithfully main- A memorandum of the transaction — sale, lease, or mortgage — is inscribed on the page of the office ledger devoted to the particular property. A duplicate of the memoran- dum is handed to the agent, who may or may not be a solicitor, and the business is completed in an hour for a tithe of the cost to a conveyancer's client under the old system. The transfer system's importance is due, in great measure, to its being in part compulsory. AH land acquired from the State, after the coming into force of the Transfer Acts, is placed under them as a matter of course. The registration of other private lands is optional, and though the older system is being gradually extinguished, it dies hard." — W. P. Reeves, " State Experiments in Australia and New Zealand," Vol. I, pp. 211-212. The Torrens System of registration of titles is now in use in all the British Colonies, and in the Philippines, Porto Rico, Hawaii and Guam. p (.;■ c- r^ — , == J *1 s ^ t. ! J • 9 Q 1 1 i S '1 „ 1 a 1 ■ h ^ o c i* 1 ^ 1 ^ g) 1 % 1 I . I , 1 ; S a •8 1 ."1 « «» « m « «• -t .S « ■5 < rt -g fi. « Ph 11 g o 13 •s" i % s Pi u 3 O 1 > o § il 1 s 3.30 INDIVIDUAL TRUST DEPARTMENT 331 of sale; memorandum of settlement, which serves in place of a bill in real estate sales and purchases, and shows the adjustments of rent, taxes, interest, etc., which may enter into these transactions. In a large real estate business many other printed forms may be necessary. Keys can be kept conveniently in stout manila envelopes of uni- form size, filed by the location of the property. When the key is borrowed, a receipt should be taken on the envelope, which is kept by the company. Repairs are authorized by the officer who rents the properties, subject of course to such limitations as have been imposed by the owner. On receipt of a complaint, the matter is referred to an inspector or a mechanic for examination and report, except in cases of emergency, when the work is at once ordered. All orders are given in writing on special order forms of which carbon copies are kept. As soon as the work is completed, bills are rendered on forms supplied by the trust company. Separate bills should be made out for the repairs to each property. After inspec- tion of the work, and verification of the bill in connection with the order, a check is mailed, which bears on its face a statement that it is in full payment for work done and materials furnished under the order or orders which are specified by number. Each bill is initialled by the inspector, by the officer who ordered the work, and who ap- proves it for payment, by the payment clerk when the check is issued, and by the bookkeepers who enter the charge in the real estate and individual trust ledgers. The bills, which serve as charge slips also, are retained and filed, and the indorsement of the check takes the place of a receipt. The payment by mail of bills for repairs saves the mechanics or their representatives many unnecessary visits to the office of the trust company. INSURANCE ON REAL ESTATE Insurance is carried on improved properties owned by the com- pany itself or held for trust accounts. Policies of insurance are also held as collateral security with mortgage loans on improved real estate. Insurance may cover loss by fire, boiler explosions, toma- 332 THE MODERN TRUST COMPANY does, burglary, and breakage of plate glass, loss of rent, liability for accidents, and employers' liability. Where the properties and mortgages owned and controlled are few in number, the insurance policies can be kept and recorded in the departments in which the investments are held. If the amount of insurance carried is sufficient to justify the expenditure, it is well to have all policies cared for by some one with special qualifications for this duty. On receipt of a property or mortgage, the policies are turned over to the insurance clerk, who makes sure that they are in proper form, that they are written by responsible companies, and that the total amount carried is sufficient. The insurance clerk takes out new policies as the old ones mature, and in case of fire represents the trust company in the settlement of the loss. A maturity book or index is kept in which is noted the date of expiration of each policy. This book is arranged as a perpetual calendar, with one page for each day in the year. Each policy is entered on the page of the day on which it matures, and the year is written in pencil as the last item of the record. Or the book can be arranged to run for a specified time with a separate space for each day during the period. Maturties can also be satisfactorily recorded on a card index, the cards arranged in chronological order, accord- ing to the date of maturity of the policy. The current month' is divided by guide cards according to days, the current year by months, and later maturties by years. The maturity book or index shows the number and name of the account for which the policy is held, the property insured, the name of the insurance company, the amount and date of expiration of the policy. It may also show whether the policy covers property owned, or held as collateral with a mortgage loan. The estate index is arranged alphabetically by the titles of the trust accounts. Each card shows the name and number of the estate, the location of the property insured, the number of the insurance policy, company, amount, and date of expiration. If the policy is held as collateral, the name of the bondsman and amount of the mortgage are also shown. The location index is arranged alphabetically by states, counties. INDIVIDUAL TRUST DEPARTMENT 333 etc. The cards show, besides the location, the name and number of the estate, and, if collateral, the name of the bondsman and amount of the mortgage. Then follows an itemized list of all the insurance on the property, giving the name of each company and the amount and expiration of the several policies. A record of the agents of the various companies and the brokers through whom the policies are placed, can also be made on the location cards. When there have been losses by fire, this index is the first to be consulted. The " line " index, on another set of cards, is arranged alphabeti- cally by companies. Under each company the cards are arranged according to location. The name of the company, location of the insured property, number of the trust account, amount and expira- tion of the policy, are given. This index keeps the insurance clerk informed of the total risk carried in each company, and the geograph- ical distribution of the insured properties. Each of these three sets of cards should be of a different color from the others, as a matter of convenience in readily distinguishing them. The policies are stacked in upright files. There are two main divisions, — for policies covering properties owned and properties held as collateral. The arrangement of both divisions is first by trust numbers and then by properties. Each policy is kept in a manila envelope 4i"X9i", open at the end. On the envelope are indorsed the number and name of the trust account, the premises insured, company, number, amount, and expiration of the policy. If col- lateral with a mortgage, the name of the bondsman is also given. The envelopes for policies owned may be printed in black, and those for policies held as collateral, in red. A slip giving a description of each policy, and showing that it has been filed by the insurance clerk, is placed with the real estate or mortgage papers. A printed form is used to notify mortgage borrowers of the expira- tion of collateral insurance. This notification should give the name of the mortgagee to whom the policy is to be made payable in case of loss. CHAPTER XV INDIVIDUAL TRUST GKPARTMENT — (Continued) RECEIPT OF TRUST FUNDS The entire separation of the affairs of the banking and trust departments makes it necessary to have separate trust department receiving and paying tellers. If the trust department is small, both offices may be filled by a single individual and may even be combined with other duties. All cash receipts of the trust department pass through the hands of its receiving teller and are included in his daily settlement. Mort- gage interest and rents come to him directly from the payers and tenants, but coupons, interest and dividend checks, bonds, and other principal items are received through officials of the trust depart- ment. Some of these have to be collected by messenger, and are then turned over to the receiving teller. The cash should in all cases go from the collector to the receiving teller, and never be al- lowed to pass through the hands of the bookkeeper. In the banking department, the receiving teller enters the amount of each deposit in a pass book which he returns to its owner, while he retains the deposit slip. In the trust department the procedure is somewhat different. The bookkeepers prepare bills and correspond- ing credit slips for mortgage interest, rents, etc. These credit slips are passed in advance to the receiving teller and are filed by due dates and names of payers, so that the slips representing overdue items always appear at the front of the teller's index. The bills are veri- fied when presented for payment. The slips are stamped " paid " and the bills are receipted and returned. When collections are made by messenger, bills are not sent out, but the necessary credit slips are prepared by the bookkeepers, and, with the cash, are passed to the receiving teller by the collector. Coupons are cut, and notes and other maturing securities are taken 3.34 INDIVIDUAL TRUST DEPARTMENT 335 out by the officer in charge of the vault and are deposited by him with the receiving teller as cash or for collection through bank. The accompanying credit slips are prepared by the bookkeepers. Regis- tered interest and dividend checks which have come by mail are passed to the teller with credit slips showing the accounts to which they belong. The credit slips covering each of the different kinds of receipts are listed by the teller on an adding machine or in a scratcher, and are then passed to the bookkeepers for posting just as is done with the deposit slips in the banking department. The receiving teller's settlement shows the total of each sort of receipt, divided into income and principal. Important and often difficult problems arise in decid- ing what is principal and what is income. The distinction is funda- mental and all doubtful cases should be referred to the trust offi- cer, and, if necessary, to counsel. If sepairate corporate trust and individual trust departments are maintained, the settlement shows the receipts first by departments and then according to the nature of the item. The total receipts for the day settle with the cash on hand and the amount deposited in bank. The stamp used in indorsing checks fof deposit shows that the check has been paid to the trust department of the company. In states where it is not contrary to law, the trust department usually deposits its funds to its credit in an account in the banking depart- ment. In certain states, however, a trust company is required to de- posit its uninvested trust funds in some other financial institution. DISBURSEMENT OF TRUST FUNDS In the trust department all funds are disbursed by the trust officer or by the payment clerk to whom this authority is delegated. As agent or attorney, the company makes payments in accordance with the directions received from time to time from the owner. As trustee or executor, it is governed by the terms of the deed or will, in the latter case subject to the supervision or direction of the court; as administrator, by the intestate laws and orders of court. The disbursing officer of the trust department must be familiar with the conditions of each case, and this makes his problems more 336 THE MODERN TRUST COMPANY complicated than those of the paying teller in the banking depart- ment, who before paying a check has only to know that the- signature and indorsements are genuine and the bank balance sufficient. Sometimes an opinion of counsel should be obtained or a special order of court may be necessary as to the right or duty of the com- pany to make disbursement of trust funds. Sometimes proof must be had that the beneficiary has complied with certain requirements contained in the instrument creating the trust, and so is properly entitled to the payment. An annuity, for example, may have been made payable to an agent. No such payment should be made with- out satisfactory evidence that the annuitant is alive at the time. When income payments are made, a sufficient sum must be retained to cover commissions, taxes, repairs to real estate if any, and other charges against the estate, and the disbursing officer must use con- siderable judgment in making provision for fixed or contingent lia- bilities, at the same time satisfying the reasonable demands or needs of the beneficiaries. Payments may occasionally be made, even when there is no cash balance to the credit of a trust account, if such a course is to the advantage of the estate, and the trust company is protected against loss by assets sufficient to cover the overdraft. This is often done to settle debts, provide for funeral expenses, pay taxes, or make reinvestments when securities are about to mature. Interest is charged on all debit balances. A card index arranged as to years, months, and days serves as a guide in making disbursements. Under each date the cards are indexed alphabetically by the names of the accounts. When a regu- larly recurring payment is made, the card is moved to the corre- sponding distribution date of the next year. This index covers in- come payments, annuities, and other charges against trust estates, such as interest and principal of mortgages, taxes, etc. For regular income payments, standing orders are usually filed, directing that they shall be remitted by mail or placed to the credit of the bene- ficiary's deposit account in the banking department or with some other company. Those who prefer to collect income in person are paid by check, after establishing their identity. Before any payment is made, a charge slip is prepared, and signed by the officer authorizing the disbursement, which shows the account i •s 1 •9 g" 3" £ GO ■8 1 I S CD 1 Q- J ■I ! :l- N S s 6 337 338 THE MODERN TRUST COMPANY charged, the payee, and the details of the payment. A check or voucher is then filled out, and signed by the proper officer or officers. The check should bear on its face the words " trust funds " and should be so drawn that the indorsement will serve as a receipt. In the case of repairs to real estate, the bill takes the place of a charge slip.^ When the accounts of executors and trustees come up for audit, vouchers are required by the court covering all disbursements. These receipts are ' either filed with the account or presented if called for. In parting with trust assets other than cash, an order is signed by the proper officer, authorizing the withdrawal from the vault and delivery of the securities. A receipt or release is taken when the securities are delivered. When* legacies are paid prior to final accounting, receipts or releases are filed or presented in the same manner as receipts for other disbursements. When legacies are paid after final audit of the account in accordance with the court's adjudication, the receipts or releases of legatees are some- times filed with the clerk of the court, thus completing the record of the settlement of the estate. The daily settlement of trust disbursements shows the total of the charge slips, separated according to the principal and income payments, and this should agree with the total of checks issued as shown by the stubs. The balance in bank ahd the cash in possession of the trust department receiving teller represent the uninvested trust funds at the close of business and agree with the amount shown by the general ledger. The bank account of the trust department should be settled weekly, and reconciled with the check stubs or whatever other record is kept of trust checks issued. RECORD OF INDIVIDUAL TRUSTS When securities are received for trust accounts, a duplicate of the receipt is filed for reference, and from it a. description of the items is at once transcribed into an accession book called the record of trust securities received. This book contains a series of parallel columns, showing the number and name of the accoun*^, description 1 See p. 331. RECdJO) OF TRUST BECTTRITIES RECErraD TMt TBCSI aiwli Sfflld. PECUWTT" FATslufl lppr.t» Kj. Nams Tklae — - ' - TffiOOBD OF TRDST SECTJMTIE3 RECEIVED BBCBlveDroB 1 lUWrt^f ■mM iTOcics somi 41 wrscsBCURirna I .vnRTaAciB 1 ItEAlIBTATB tNSDRANCB I DSPOSlTEDJNTAnLTl by OonttoUer Da to B/ ISd«l(lf Kituntv lodti iLocailaii ID4CI Indci Preprnioi Mklunir iDdei iDdOK Lncition Um lodol DftU Br. ' „ . ' - ' f 'f MinnM) fiT TnnCT Bnaimrnzs ptLmeMD D&TE Tmt No. ESTATE ^lun. Bosdi SECUnlTT " " ■RECORD OF TRUST aECnRnTES DELIVERED == - lUte Ptke Becei*cd r:^:; M0BTC1A0B3 1 BKALBTATt j IHJPRAHCB EauuMd Coatronar RwbHUh ":r;' xr Hitnnu Ibcol Uouot lUiuncT XnM Uk-Uob I^. tDl 1 ^ 1 , ^ •■ INDIVIDUAL TRUST DEPARTMENT 339 and value of the security, when and by whom received, by whom entries covering the item were made in the proper books, when and by whom the securities were finally deposited in the vault, and a last column to be initialled by the controller after all the proper entries have been made and the security h^s been put away. Each clerk upon making the entries for which he is responsible places his initials in the proper column. This record is also used as a receipt book, and indicates in whose hands securities are and how far the records have been completed. Cash received is at once entered in the cash book, and does not appear in the accession book. The accession book may be so ruled that every kind of security can be entered in it, or if the company transacts a large business it may be divided into two books, one for stocks and bonds, and another for real estate and mortgages ; or if desirable it may be still further subdivided. Slips are sometimes used to report new securities, but a bound book is preferable. The value of the accession book lies in its calling the attention of the clerks to each possible place where entries should be made. The initials in the various columns place responsibility for the correctness of the entries, and the examina- tion by the controller detects any omissions. The number and name of each new trust account, and the capacity in which the company acts, should be entered in the record of trust securities received when the account is opened. The record of trust securities delivered is a companion book to the record of trust securities received. An entry is made in the de- livery book when securities are sold or delivered, when any principal payment is received, or when a trust account is closed. The book can either contain all deliveries or, like the accession book, it can be divided into separate volumes for the different classes of securities. The record of individual trusts is the most important book of reference of the trust department. Supplemented by the trust led- gers, it gives the present status of each trust account and forms a history of all past transactions. It should not be kept by the officer who has charge of the securities. For such constantly changing records as those of trust assets, a loose-leaf book has many advan- tages. Space is saved, as extra pages are inserted only as needed and dead matter is transferred to separate binders. Accounts can 340 THE MODERN TRUST CQMPANY always be kept in their numerical order; securities can be classified and, where there have been many changes, single pages can be rewritten at any time, without the necessity of copying the whole book. Sheets ii" long by 12" wide (exclusive of the blank binding space), kept in locked binders, have been found well adapted to the purpose. Each trust account has an abstract sheet and as many of the following sheets as are needed to record the securities it holds. Sheet A. — At the top the word "abstract" is printed, and space is left for the title of the account and its accession number. The remainder of the page is devoted, as its name implies, to a brief description of the account. The nature of the appointment and of the estate, the disposition of income, authority as to investments, nature and amount of debts and encumbrances, notice of assignments, rate of compensation, exact title in which securities are registered, power to sell, if any, and the name and address of counsel are shown, together with the names of the beneficiaries and miscellaneous data. The sheet is 'divided into three columns, and the headings are printed far enough apart to leave room for the various entries. The back of the sheet is also ruled, and can be used in recording further information. Sheet B. — " Coupon bonds " is printed at the top of the sheet, followed by spaces for the name and number of the account. Both sides of the sheet are ruled and printed. Every fourth line is ruled more heavily than the rest. This divides the page into spaces of four lines, and each security is entered in a separate space even though it does not fill it entirely. At the left-hand side is a date column, a column for tick marks, then one, 3J" wide, for the descrip- tion of the security including bond numbers, columns for the date of maturity and interest periods, cash columns for the par value and the appraised or cost value, and, lastly, a widjer column for payments and remarks. Sheet C. — Stocks. Columns are ruled for date, tick marks, number of shares, description, certificate numbers, dividends paya- ble, par value, appraised or cost value, and" payments and remarks. Every second cross line is heavier, a space of two lines being devoted to each security. fiHEBT NO. ABSTRACT KAME -i Appointment Authority aa to InTeatnl Under wUJ of ; Lato of Who died Will dated Probated Ke^stered In rountv Wll Book Vol Daffo By Court at No. Tpnn 19 Deed of Trust Dated Debts and IncumbFaDcea Agreement dated 1 Notice of Assignmeiile Natura of Estate . Dispoaition of Income Compenaatiob Securities to be Rt^utcn Power to Sell Counsel 1 NO Cestui que TrustcDl ■ and Beneficiai-ies / other Data ' ;■ 1 INDIVIDUAL TRUST DEPARTMENT 341 Sheet £>.— Notes and miscellaneous securities. Columns for date, tick marks, description, par value, appraised or cost value, and payments and remarks. The cross rulings allow three lines for each security. Sheet £.— Registered loans. This page "is like sheet B in every respect except the title. Sheet F.— Mortgages. Columns for the date, tick marks, prem- ises, bond of, maturity, interest rate and dates payable, par value, appraised or cost value, and payments and remarks. A space of four lines is provided for each mortgage. Sheet G. — Real estate. The date, description of the property and of encumbrances, and the appraised or cost value are shown, with a final column for payments or remarks. Six lines are allowed for each property. Other sheets can be provided as needed for securities not in- cluded in the above list. Thus, where real estate loans in the form of ground rents are held in any number, a sheet should be used, ruled to show the date, premises, whether redeemable or irredeem- able, rent payable, rent per annum, par value, appraised or cost value, and payments or remarks. Additional purchases of securities already held are entered in the same space as the original 'investment, thus obviating the neces- sity of rewriting the title of the bond or stock. When one space is not enough for the description of an investment more are filled. Both sides of the sheets are used, and as ipany sheets of each kind as are needed. The will, deed, or other authority under which the account is received, the record of securities received and the securities them- selves, are the sources from which entries are made in the record of individual trusts. The par values are verified by actual com- parison with the securities, and the total of the appraised or cost values of each account must settle with the total investments of the estate shown in the individual trust ledger. The total appraised or cost value of all investments of each sort held, settles with the corresponding general ledger account. All securities sold or dis- tributed are ruled out, and the particulars are noted on the sheets in the space provided for this purpose. When all the securities 1 i 'A § 2 8 s s ( 1 1 1 s -3 > 1 1 1^ 1 1 . ^ 1 ^3 ~* ^3 — ^ — ^ —J' •J — 1 — i — 1 — wi < — 1 Hj ^ 342 g \ 1 n || ii - - - -if 1 ~ ::: ^ s. II II 1 •> _ _^ , 343 i \ 344 1 ) Ij ll i II 1 .2* 1 ^ & __ s= 34S u i i 1 1 Ij ll 1 i 1 1 1 fs 1 i V i L i =;; c= 346 347 348 THE MODERN TRUST COMPANY on a sheet are ruled off, the sheet is taken out and filed in a transfer binder. When an account is closed, a closing entry is made on the abstract sheet, the sheets are stamped " closed," and are transferred in the same way. The record of securities delivered is the authority for making these entries. If a page has t© be rewritten, it is not destroyed, but is marked " rewritten," and is filed with the others in the transfer binder. A card index arranged alphabetically, and giving both the name and accession number of each trust, makes it easy to refer to any account in the record of individual trusts. It also serves as an index to all valuable papers, not securities, which may most con- veniently be kept together under trust numbers in vertical filing cases, in a vault or fireproof case. The index of trusts is divided into open and closed accounts. When an account is closed the card is stamped " closed," and is transferred from one section to the other. In addition to having in the record of individual trusts an abstract of the authority under which the company acts, it is well to have complete copies of these documents in accessible form. For this purpose a typewritten copy of each will, deed of trust, agreement, power of attorney, or other document is made when the account is received. These copies are kept flat in binders, in order of the ac- cession numbers of the accounts. When an account is closed, the copy of the will or other authority is removed from the binder, and is filed with the estate papers. In this way, live matter only is con- tained in the binder. INDIVIDUAL TRUST LEDGER Other elements besides cash enter into the individual trust ac- counts, and consequently a different form of ledger from that used in the banking department is required. This ledger is preferably a loose-leaf book. The accounts are kept in alphabetical order. The trust number is used throughout as an additional safeguard in placing the items. At the top of the page appear the name and number of the account, and the rate of compensation. When it is necessary to separate accounts of proceeds of sale of real estate from nv KSTATH nv " D»U) lUims Taaeher Ho. INCOME Dibit Bil>ni» OrouC « " ~ - - — ^; -- -,..._ INDIVID 'ruaLNa >hMl Na " s PRINCIPAL INVESTMENTS | N.I Cr«iil Pebit BoluDcc Credit Debit BalADce Cmdit 1 — il 1 — ' ' ' ■^ ■^ "^ ■^ ^ ■^ ^ ^\ ^ A _ jifLEDGER INDIVIDUAL TRUST DEPARTMENT 349 accounts of personal property, two ledger sheets may be used for one trust so as to simplify the preparation of the accounts to be filed with the court. The sheets are ruled on both sides. At the left of the sheet are date columns and a description column. This col- umn should be wide enough for as full an explanation of each item as needs to be given in accounting to court or to the beneficiary, and each entry should be so complete that the ledger sheet can be handed to an intelligent stenographer to prepare court accounts or statements from it. Next comes a narrow column for the check or voucher number, which is useful in identifying checks when needed for reference or to be produced in court. The= rest of the page is filled by cash columns under the three main headings of income, principal, and investments. In some cases it may be preferable to use one sheet for principal and investments and another for income. In the " income " section under debits are shown payments to creditors and beneficiaries, taxes, repairs, interest on overdrafts, commissions, and all other distributions chargeable to income. Under " gross credits," all income receipts are entered. The next columns are headed commissions and net credits. The gross amount of each income receipt is thus shown, followed by the commission on it, and the net sum for distribution after deduction of the trust company's charge. The commissions and net credits settle with the gross credits. By computing the commissions on income at once in this way, the danger of over-payments of income to bene- ficiaries is avoided and it becomes unnecessary to pick out the items later, so as to compute the amount of compensation on the total. The balance column, which completes the income section, shows the difference between the debits and gross credits; in other words, the balance of income on hand for distribution and payment of commissions. Debit balances are shown in red. The " principal " section consists of debit and credit columns, and a balance column. The credit column shows the corpus of the estate at the opening of the account, and all subsequent accretions. The debit column shows all losses and amounts paid out in distribution. The balance column gives the difiference between the two, which is the amount of the corpus of the estate for which the trust company is liable. There is no separate column for commissions on principal, 350 THE MODERN TRUST COMPANY as these items do not appear often enough to make it necessary. Under " investments " are columns for debits, credits, and bal- ance. The debit column shows that part of the corpus of the estate which is invested at the opening of the account, and the cost of all subsequent purchases of securities. The credit column gives the amount realized from sales of investments, and the amount of invest- ments distributed in kind. The balance column shows the amount of investments on hand. The amount of uninvested principal is found by deducting the debit balance in the investment section from the credit balance in the principal section. The total amount of cash on hand belonging to the estate is composed of the uninvested principal, and the balance in the income section. If the estate is "over-invested, or if the income receipts have been anticipated and paid out, the cash balances may show an overdraft. Ledger postings are made from the credit and charge slips de- scribed under receipt and disbursement of trust funds. The credits and charges are also listed in scratchers. The totals of the indi- divual trust ledgers settle with the controlling accounts in the trust general ledger. Daily balance and interest slips are used, similar to those in the banking department,^ except that they cover a three months' period, three columns showing principal balances and three income. Cal- culations of the interest charged or allowed are made on daily bal- ances as in the case of deposit accounts.^ Each day's changes are made on the slips, and the resulting figures are called' back to the ledgers to verify the ledger postings. In accounts where principal balances are not for investment, this fact is noted on the slip. Each day, as the changes are made, blotters are inserted in the files of bal- ance slips, different colors being used to denote principal and income items. At the time of verification with the ledgers, the blotters marking income changes are taken out, while those representing changes in principal balances are moved so as to show at the opposite end or side of the file, which is then used in making the daily changes on the index of uninvested principal balances.' The accounts in the individual trust ledger are closed at fixed 1 See p. no. 2 See p. 109. a See p. 378, INDIVIDUAL TRUST DEPARTMENT 351 intervals when statements are rendered the beneficiaries, or when accounting is made to court. Trial balances should be taken off at least once a month. On the trial balance of the individual trust ledger, cash is the balancing account, being the difference between the principal and investment section plus the balance in the income section. Accounts are filed in court in accordance with legal requirements. The books of the trust department should "be so kept that such ac- counts may be merely a transcript of the ledger. The courts usually prescribe the form in which accounts shall be filed, for the sake of uniformity often fixing even such details as the size of the sheet to be used. As accounts may cover long periods, it is well to have the transcripts kept up to date, so that only the work of a short period will have to be added to them before the account is filed. In this way, lengthy accounts can be prepared in slack times and kept ready for immediate filing, without interfering with the current work of the department. Statements should be sent at least once a year to the clients of the trust department; when possible, a semi-annual or quarterly account is to be preferred. As most statements are sent out at fixed dates which can be determined in advance, they should be prepared beforehand, so that only the last items have to be added at the close of the period. Prompt rendering of such statements is always appreciated by the recipient. TRUST GENERAL LEDGER In the trust department a double entry system of accounts is used, which is complete in itself and independent of the general books of the company. Its connection is only shown by the item of un- invested trust funds, when these are deposked with the banking de- partment, and by the earnings from the business which are trans- ferred by cash entries, at fixed periods, to the company's income account, and so appear in its profit and loss account. Whether there be a single trust department or a corporate and an individual trust department, each keeping separate sets of auxil- iary books, the main threads of the trugt business are gathered 352 THE MODERN TRUST COMPANY together in a single general ledger. A botind volume with the or- dinary ledger ruling may be used. In its simplest form, the trust general ledger contains the following accounts : — Principal. — This account shows the total corpus or principal sum, invested and uninvested, of the estates in the trust department at appraised or cost values. It may appear in the general ledger as a single account or divided according to. the capacities in which the company acts. Income. — Here the total income to the credit of the various trust accounts is shown, either in a single account or separated as in the case of principal. Investments. — This account shows the total of all invested trust principal with which the company charges itself. The difference between the principal and investment accounts represents the amount of uninvested principal. Cost or appraised values are shown. A single account may be used, although separate accounts for the various classes of investments are preferable and, if thought wise, each one can be subdivided according to the capacity in which the company acts. Cash.—^ This account shows the total amount of cash with which the company charges itself. It includes income and principal mon- eys awaiting distribution, principal for investment, and accrued com- missions. Commissions. — To this account are credited the various items of commissions as they accrue. At fixed periods, usually once a month, it is closed into the earnings of the company by a cash entry. The general ledger balance sheet containing the above accounts is as follows : — TRUST DEPARTMENT GENERAL LEDGER BALANCES Debits Credits Cash $500,000 Principal $4,800,000 Investments 4,500,000 Income . » 190,000 Commissions 10,000 $5,000,000 $5,000,000 INDIVIDUAL TRUST DEPARTMENT 353 If the corporate and individual trust departments are separate, the same balance sheet appears in the following form : — TRUST DEPARTMENT GENERAL LEDGER BALANCES Debits Credits Cash $500,000 Principal: Investments : Corporate, $1,800,000 Corporate, 1,700,000 Individual, 3,000,000 $4,800,000 Individual, 2,800,000 4,500,000 : — Income : Corporate, $90,000 Individual, 100,000 190,000 Commissions : Corporate, $S,ooo Individual, 5,000 10,000 $5,000,000 $5,000,000 If all trust business is cared for in a single department, but a more detailed balance sheet is desired, the general ledger accounts shown above are divided according to the capacities in which the company acts and the kinds of investments held. TRUST DEPARTMENT GENERAL LEDGER BALANCES Debits Credits Cash $500,000 Principal : Investments : As executor, $500,000 Coupon bonds, $1,000,000 As administra- Stocks, 500,000 tor, 300,000 Notes and mis- As guardian, 100,000 eel. see's. 10,000 As trustee un- Regd. loans, 1,500,000 der will, 2.000,000 Mortgages, 1,000,000 As trustee un- Real estate, 490,000 4,500,000 der 4eed, 1.500.000 As attorney, 400,000 $4,800,000 Income 190,000 Commissipns 10,000 $5,000,000 $5,000,000 The income and commission accounts can be divided to corres- pond with the principal account. Each class of investments can 354 THE MODERN TRUST COMPANY also be divided according to the capacity in which the company acts. Where there are separate corporate and individual trust depart- ments, the same subdivisions can be made under each department. The number of accounts in the general ledger and the consequent amount of detail shown on the balance shejet depend on the size of the business and the information required' by the officers. For a small company, the simplest form will suffice. A large business requires a more detailed analysis of the general ledger ac- counts. The trust department general ledger is closed at the end of the fiscal year by bringing down the balance of each account before commencing the business of the new period. The process is simple, as the company's expenses are shown in its general books, and commissions is the only account in the trust department general ledger to be transferred to earnings. In the trust general cash book, if the business is settled on a daily basis, separate columns for income, principal, and investments appear on both debit and credit pages. When securities are sold, paid off, or delivered, the original cost is charged to investments, and any profit or loss resulting from the transaction is either credited or charged to principal. When securities are bought and carried at cost, the amount paid is credited to investments. The data for each entry are obtained from the charge or credit slip, which shows the component parts of the item and the accounts into which it is to go. The day's total of each class of receipts and expenditures is posted from the cash book to the general ledger. If the business is settled on a monthly basis, the cash book should be ruled with a separate column for each of* the active general ledger accounts, so that the totals can be posted instead of the individual items. A miscellaneous column is used for the inactive accounts, and each item entered in it is posted separately. The journal is ruled with two columns for each active general ledger account and two for miscellaneous it'ems. From the columns for active accounts, postings to the general ledger are made by totals, while from the miscellaneous section each item is posted separately. A trust department comparative daily balance sheet is prepared INDIVIDUAL TRUST DEPARTMENT 355 for the use of the officers of the company.^ At the left-hand side of the sheet appear the titles of the various a&ounts followed by cash columns for yesterday's and to-day's balances and increases and decreases to-day. The assets appear at the top of the page, divided according to the arrangement of the accounts in the general ledger, to show the various sorts of investments held. The liabilities fol- low, separated into principal held in various capacities, income, and commissions. The number and arrangement of the items is deter- mined by the accounts carried in the general ledger. Totals of both assets and liabilities are shown, and net changes in each, in order to balance the footings. A comparative monthly balance sheet in tfie same form, but printed on a different colored paper, is used to show the changes in the busi- ness from month to month. A monthly statement should also be made of the number of trust accounts opened and closed, and the resulting balance of open ac- counts at the end of the month. The lists of accounts opened and closed should give the names, with a short description of the size and character of each estate, and the capacity in which the com- pany acts. COMPENSATION California was the first state to develop a standardized basis for trust company fees and charges.^ A special committee of the Trust Company Section of the Ameri- can Bankers' Association, after canvassing the trust companies of the country, has prepared a tentative schedule of charges based on the following determining factors : That a standard schedule must be fixed upon the under- standing that the duties involved and responsibilities assumed are those usual in the average trust of its kind, as adminis- tered in the average community, with efficient servicfe ren- dered and adequate skill employed. 1 See p. 432 for description of a similar balance sheet. 2 See " Schedule of compensation for fiduciary services adapted by the trust Companies of California," by J. H. Coverley, Trust Companies Magasine, Vol. VII, p. 19 (July, 1918). See Appendix, " Schedule of Charges," p. 472. 356 THE MODERN TRUST COMPANY That the compensation must be fair and reasonable for the service rendered, and advantageous to the patron as well as remunerative to the trust company. That exorbitant charges retard or prevent the growth of trust business, while inadequate charges eventually result in a deterioration of the quality of service rendered, which in turn reacts unfavorably upon the exJ)ansion of trust business. That a uniform or standard method of charging throughout the country should tend to stabilize the trust business and create a better public opinion of the value of trust service. That as a guide or indication of general trust costs the schedules should serve as a deterrent to that evil now preva- lent in many communities, namely, "injurious cutting," which practice inevitably results in inefficient trust service. The committee expressed its belief that adherence to the tentative schedules, as nearly as may be possible, after making the necessary modifications to comply with local usage, laws and customs, will have, among others, the following beneficial results : It will enable small trust companies with inexperienced of- ficers to fix fees on a basis of reasonable profit, and thereby eliminate the features of experiment, and guesswork. It will tend to eliminate, among the larger trust companies, the injurious practice of price-cutting to a point below the reasonable cost of service. It will provide all banks now organizing trust departments with a guide in their early endeavors in the trust business that they may be able to conduct their business upon a re- munerative basis from the very beginning, and thus attain more quickly the standards of efficient service maintained by the state trust companies, and preserve the public confidence now reposed in these companies. It will enable trust departments of banks now used only as feeders of other departments to become self-supporting and reasonably profitable, many such departments now being operated at a loss in so far as compensation for their specific functions is concerned. INDIVIDUAL TRUST DEPARTMENT 357 It will develop in the public a realization that the trust busi- ness is conducted upon efficient and scientific lines ; that the compensation charged for fiduciary services has been care- fully computed and ascertained to be fair and reasonable in all cases; that all patrons are treated with equal justice, re- gardless of the nature or volume of their business. It will enable attorneys to advise clients as to the approxi- mate charge for proposed trusts and promote a harmonious and cooperative relationship between the attorney and the trust company. It will enable the trust companies' in various districts and localities in the United States to compete keenly and fairly with one another on a basis of efficient service and skill, rather than upon a basis of cheapness of price. It will enable trust company patrons to proceed with some degree of assurance as to the cost Qf the service which they require. " The maintenance of a high standard of service depends, to a large extent, upon the adequacy of the compensation received by the companies. It therefore becomes a matter of vital necessity to ascertain the cost of trust service to the company, and to formulate a schedule of charges which will enable the trust companies of the country, not only to maintain their present efficiency, but to increase the scope of their activities and to improve the quality of the service now rendered by them." ^ This approximate scale of charges for services rendered by the trust department is a safe starting point. It can be followed with confidence and developed or modified as experience may prove necessary. Some of the rates will probably have to be advanced as the cost of the service rendered or the responsibility assumed is found to be out of proportion to the fees tentatively suggested, which have purposely been fixed on a conservative basis. When a trust company serves in capacities in which its actions are subject to review by court, the compensation is fixed either by statute or by order or decree of court. The courts usually allow 1 Report of Committee on Standard Forms and Charges, J. A. House, Chairman, Trust Company Section, A.B.A. St. Louis, 1919. I n 5 1 IB (A S i 1 ■ ? z o a o IS 5 < 1 2 o a § u 14 K - 1 3 1 a 1 1 E < " - 1 ■^ CI « D ? 1 * ' 3S8 INDIVIDUAL TRUST DEPA'RTMENT 359 trust companies the same compensation that would be given to in- dividuals acting in similar capacities, and this may be made the foundation of the company's schedule of rates. When a trust company and one or more individuals act as co-executors or co- trustees, the commissions may be equally divided, or the trust company, if it cares for the securities and does the principal part of the work, may receive the larger share of the commissions. If the estate of which it is executor or trustee is very large, the court may decide upon a commission srtialler than that usually allowed. As agent and attorney, the commission charged for the mere collection of interest and dividends is less than for taking care of the securities also. A larger commission is charged for collecting rents than for collecting interest and dividepds on bonds and stocks. When acting as trustee, the commission is based on the value of the trust property or is charged on the income collected, and on the principal of the personal property at the close of the trust. No commission is charged for reinvesting.^ In executorships, a commission is charged on both principal and income. In Pennsyl- vania, if the same person is executor, and also trustee, he is entitled to receive or charge but one commission on the principal coming into his hands. When a trust company is to be named as execu- tor or trustee under a will, an agreement as to charges is often made with the testator. Under such circumstances, the company's officers can be consulted with perfect propriety and in entire con- fidence, and other matters besides that of compensation can be settled, such as the appointment of co-executors, while the testator may at the same time obtain valuable advice as to the best methods of carrying out his wishes. Commissions should be charged on each item when it is collected, or at the end of each month or quarter, except in estates in which the rate of compensation is subject to review by the courts. The general principle that earnings of the company should wherever possible be taken credit for during the period in which they accrue, holds good here. 1 For compensation of trustees in the various states, see " A Trustee's Handbook," by Augustus Peabody Loring, p. 30 ei seq. CHAPTER XVI INVESTMENTS FUNDAMENTAL PRINCIPLES The true nature of the investment fund and the importance of its functions should be understood. No nation or individual can prosper except through industry and frugality resulting in the production of sufficient wealth to exceed actual needs. Industry in a people as a whole, and the production of sufficient supplies of all those commodities which go into consump- tion and contribute to the physical welfare and happiness of the population, are the necessary basis for an improving standard of living conditions. Inventions and the introduction of labor saving machinery, although they may cause social readjustments and temporary inconvenience, in the end benefit not only mankind as a whole, but every individual. Under peace conditions, famine and pestilence are no longer the constant menace they were during the centuries when the maximum efforts of the tillers of the soil were barel5' sufficient to meet daily needs, when a crop failure meant starvation."^ Concentration of population in the industrial centres has cheapened the necessities of life; improved machinery — the reaper, the binder, the tractor, the milker and the separator, for instance — have increased the produc- tivity of farm and dairy, giving a margin beyond actual needs ; while more important still, the development of transportation has put the surplus within reach of all the world. The popular conception is that the acquisition of weahh is a process of hoarding and involves the withdrawal of money, goods, buildings and land from the common store; that this process takes from the community at large and thus tends to impoverish all but those who acquire. This might be so were it possible to obtain pos- 1 See " The Romance of the Reaper," by Herbert N. Casson. .^60 INVESTMENTS 361 session of the property itself and store it away permanently un- productive and out of reach. Except, however, in rare instances, as when in panics gold is locked up in safe deposit boxes or goods are hoarded for selfish ends, the contrary is the fact. It is so for a very simple reason. The value of his property to any investor is in the return which it gives him, resulting from its use. Idle in- vestments whether in the form of land, buildings or goods tend to become liabilities rather than assets and sooner or later are forced out of hiding and into use through the operation of economic laws or community pressure. As no single individual can with safety eat more than three meals a day or with comfort wear more than one suit of clothes at a time, it is obvious that there is a limit to the extent to which the individual, however wealthy, can expend upon himself the income from the portion of the investment fund to which he holds title. The surplus income beyond his own personal needs not used in the purchase of goods and the direct employment of others, is returned to productive enterprise through the purchase of securities or in the form of deposits, which are in turn, through the medium of banks and trust companies, made available to pommerce and manu- facture. The community must protect itself, however, from the absorption of excessive and arbitrary power in the hands of the few. Laws against entail, taxes on inheritances and incomes, etc., represent the effort so to protect itself. The task of statesmanship is on the one hand to ofler such inducements as shall keep the investment fund productively employed, thereby fostering invention, stimulating de- velopment and making progress possible, and on the other hand to retain effective control through the power of taxation. Enlightened laws can be so framed as to guarantee equality of opportunity, develop natural resources, reduce cost to the individual, and at the same time attract capital and give an adequate return on the investment fund. The resources of mine, field and forest, the inventive faculty of the human brain, the labor of hand and mind, the investment fund, are all parts of a whole.^ When they cooperate for the common 1 See " The Nature of Capital and Income," by Irving Fisher, p. 7. 362 THE MODERN TRUST COMPANY good, and each element is given its fair reward and its proper share of control, they become irresistible in producing wealth as a basis for that steady progress in education, material comfort and spiritual well-being which leads to peace and happiness. The ideal investment ^ must contribute to the improvement of the people as a whole. Every investment should at least be without harmful effect. From the investor's point of view safety of the fund is a prerequisite, and an adequate return for its use is essential. The enhancement of its value is the hope which accompanies every commitment. The possibility of conversion is a factor of prime im- portance. The element of risk is ever present, and so prone is human nature to take excessive risks in the hope of large gains, that collective restraint, in the form of strict legal limitations, has been found necessary to curb the tendency to speculation in all those who act in a fiduciary capacity. Collectively the bankers of the nation control so large a part of the investment fund that the use to which they put it is of vital importance to the entire population.^ The key to opportunity and progress is in their hands. With access to information not open to the man on the street, they are not a prey to the swindler. It is their privilege to direct the development of industry. With broad vision and impartial justice they may distribute the investment fund for the uses contributing most to the common welfare and thus not only improve the standard of living, but elevate the ideals of the whole people. LEGAL BASIS The trustee's duty in investing funds is a double one: to invest them securely so that the principal shall be preserved intact, and to invest them as productively as possible under his powers, so that they shall yield the best rate of interest obtainable for the benefit of the person or persons entitled to the income. The popular idea that security is the only consideration is erroneous, as the trustee is equally bound to invest the funds profitably and cannot neglect one duty more than the other.' The further mistaken impression 1 See " The Principles of Bond Investment," by Lawrence Chamberlain, pp. '13-28. 2 See "The Banker at the Boarding House," by Montgomery Rollins, pp. 370-411. * See " A Trustee's Handbook," by Augustus Peabody Loring, p. 95. INVESTMENTS 3^3 that a corporation, even more than an individual, when acting as trustee, is mindful only of the safety of the principal and entirely loses sight of the question of income, has arisen from the restric- tions as to investments imposed by law, and frequently also by the will or trust deed, and from the fact that the individual executor or trustee, rightly or wrongly, sometimes assumes risks and personal liability which the proper rules of a trust company would not permit. Investments for attorney accounts are made in accordance with the directions of the owners or subject to their approval. The exec- utor or trustee is governed, as to the kinds of investments, by the directions of the will or deed of trust. This may require the pur- chase of " legal investments " only, or state that the trustee is not to be confined to securities prescribed by law, or give specific direc- tions as to the classes of securities which are to be bought. The terms of such documents are always strictly' construed by the courts ; if no directions are given, the trustee is expected to buy only " legal " securities, and when he exceeds his powers he is held responsible for any loss. Administrators and guardians without broader powers given by will are obliged to invest, except at their personal risk, in such securities as are sanctioned by law or directed by the court. In Great Britain ^ and in many of our states ' the securities in which a trustee may invest are prescribed by statute. These provisions vary greatly, some being very limited while others give wide lati- tude of choice. Pennsylvania, for instance, confines trustees to the following : Stock or public debt of the United States. Public debt of the state of Pennsylvania. Bonds or certificates of debt of any county, city, school district or munici- pal corporation of Pennsylvania. Bonds or certificates of debt of any other state of the United States or of any county or city of any other state, but only by leave of court. Real securities, viz : mortgages and ground rents in Pennsylvania. Real estate, and then only by leave of court. New Hampshire on the other hand gives wide powers leaving 1 See Bibliography p. 524- 2 See " Trust Company Law," by John H. Sears. 364 THE MODERN TRUST COMPANY the character of the investment largely to the judgment of the trustee, who ig permitted to invest in the following classes of securi- ties, subject 10 certain qualifying conditions: Mortgages in and out of the state. Notes secured by collateral in which the trustee may invest or secured by collateral dealt in on the New York and Boston Stock Exchange. Notes of individuals or corporations with two or more signers or one or more endorsers. Obligations of the United States. Bonds of the state or any county, city, towii, precinct or district of the state. Bonds of any state of the United States; and bonds of any county, city, town, school district or other municipal corporation of any state. Bonds or notes of any railroad company incorporated in the state. Bonds of any railroad company incorporated in any state. First mortgage bonds of corporations of the state. Bonds of street railway companies in any state. Bonds of telephone, telegraph, or express companies doing business in the United States. Stock of any bank or trust company incorporated in the state. Stock of any national bank or trust company in the New England states or the state of New York. Stock or notes of any manufacturing company in the New England states. Stock or notes of any railroad company in the United States. Stock or notes of any parlor car or sleeping car company in the United States and whose cars are in actual use upon any railroad whose stock is a legal investment in New Hampshire. " Where there is no statute or decision of the highest court fixing the class of securities in which a trustee may invest, he can safely follow the rule prescribed for the investment of the funds of sav- ings banks." ^ In general, bonds of the United States, bonds of the state or any county, city or other political division of the state, and first mortgages secured on improved real estate with ample margin are among the investments sanctioned by law. As to real estate, stocks, and first mortgage bonds of railroads, manufacturing and other corporations, the practice varies in the different states.^ Loans on personal property, second mortgages, aitd other investments sub- ject to prior liens or of a speculative character are excluded. All 1 See " A Trustee's Handbook," by Augustus Peabody Loring, pp. 96, 100 et seq. 2 See "Investment of Trust Funds: Rules of Law and Practice," by A. V. Morton, Trust Companies Magaeine, July, August, 1919. INVESTMENTS 365 investments must possess intrinsic value; the courts hold trustees liable for any losses from speculative risks — but any gains accrue to the trust estate. The trustee must hold the scales evenly, regarding scrupulously his duties to all beneficiaries. He often finds himself charged with the duty of caring for what are or may become conflicting interests. Thus life tenant and remainderman may have very different views as to the course to follow in making investments. The purchase and sale of investments at a discount or premium may easily work injury to one or the other. Averaging, by the purchase of secu- rities both above and below par, is a rough way of meeting this situation. The purchase of securities maturing at or before the termination of the trust may also obviate the difficulty. A method which in future is likely to be followed more generally than at present is the accurate amortization of premium or discount, based on the difference between purchase price and maturity value. If a security has been bought at a premium, for instance, a proportionate part of the premium may be charged off at each interest period, so that no loss to the corpus of the estate will be shown at the maturity of the obligation. The effect of taxation, national, state and local, is playing an in- creasingly important part in the choice of investments. Techni- cal skill of a high order is required to avoid mistakes and to obtain the best possible result for the estate as a'whole, with due regard to each individual concerned.^ The regulation of investment issues and increasing publicity in connection with flotations of securities are a protection to the trustee as well as to the investing public in general. So-called " blue sky laws " for the regulation of security issues have been passed by some states. The capital issues committee of the Federal Reserve Board did a signal service during the war and laid the foundation for a future system of federal and state regulation. 1 See Tax Department p. 189. 366 THE MODERN TRUST COMPANY RULES FOR INVESTING One of the first duties of a trustee on assuming charge of an estate is to make a careful examination of the securities and, sub- ject to the directions of the instrument creating the trust, to dispose of such as are improper, unsafe, or unproductive. Investments should not be changed unnecessarily, but as the best interests of the fund demand. Executors and trustees are often permitted, or directed, to retain the securities in which an estate is invested on coming into their hands, but in reinvesting are confined to other classes of securities. In settling an estate, it may be necessary to convert it into cash in order to pay debts and legacies, hence an executor is not required to keep an estate as closely invested as is a trustee who must hold it for the support of a beneficiary. The trustee should no more hesitate to change investments than does the; individual investor. Failure to make desirable changes will not be approved by an astute court on the ground that the investment was made -by the testator. It was a comfortable theory that original investments might be held with less personal responsibility than those made subsequently by the trustee himself. Fortunately for the beneficiaries, the trustee can no longer hide with safety behind this cloak for sloth, incompetence or timicfity. On the other hand too frequent changes, without sufficient reason, are to be deprecated. It is easy to slip from an investment basis to that of a trader and so to mere speculation. In making new investments accurate information and records, definite standards, analysis and research by trained experts should all be -used to reinforce the judgment of the trustee. No trustee can be held blameless who does not stud^ fundamental conditions and keep himself informed of changing economic factors; for if losses are made, due to ignorance or failure to keep abreast of the times, they cannot be charged to difficulty in procuring information or causes beyond control. No capable trustee will ever regret either the time or money spent in reducing investnient losses to a minimum. The introduction of systematic methods safeguarding the making, INVESTMENTS 3^7 watching and changing of investments not only reheves the trustee from much vexatious worry, but enables him to concentrate on the small minority of items which really need his 'best thought and effort. The great mass of investments needs sufprisingly little attention if fundamental economic laws are studied and adequate statistical work is done.^ In the past an investment once made was usually considered permanent until distribution of the fund or a marked change in value made selling advisable. So long as interest rates and security values did not fluctuate greatly, there seemed to be little advantage in making changes. When, however, as happened in the last years of the nineteenth century, money became so cheap that British consols and United States bonds were selling on a 2% basis, good municipal bonds at 3%, and railroad financing was done at close to 34%, the conscientious trustee found himself hard put to it to reinvest maturing securities advantageously. So firmly did many feel that money had reached a permanently low level that large purchases of long term bonds were made for trust accounts on the interest basis then prevailing. The shrinkage in investments made at that period, even before the great war upset security values, was very marked and resulted in heavy loss of income as well as principal to many estates. If short term securities or sound stocks had been bought during the period of cheap money, the result would have been very different. In those days bonds were always bought on a basis of the income yield if held to maturity — usually, too, without any attempts at amortization of premium or discount. " But as the events of the past two decades have shown, the theories of all the students and experts of that period have come to naught, with the result that the more logical theory of adjusting investments to shifting conditions is rapidly supplanting the old fashioned ideas. And it is proper that it should be so. It is wrong to say that the old fashioned method is the ' conservative ' method, and that the new is not. A ' conserva- tive ' method is a method that ' conserves ' ; and the old method has done anything but conserve. In brief, the conservation of invest- ment capital can undoubtedly be more surely promoted through the 1 See Statistical Department p. 217. 368 THE MODERN TRUST COMPANY adoption of intelligent, modern methods of investment selection." ^ It is to-day recognized that security values and interest rates are subject to definite economic laws based on the supply of money, activity of trade and other clearly recognized factors. How much management has to do with the success or failure of any enterprise, and cpnsequently with the value of its securities, is better understood. How public opinion forces changes in laws, and aflfects the value of franchises and the securities of natural monopolies under public control has been learned only too well. The yield value " if held to maturity " is becoming of steadily lessening importance, for bonds, like stocks, are more and more being bought during periods of low prices on a " straight " income basis with the intention of converting later in order to take advantage of higher prices.^ If one accepts the theory that periods of business activity and dullness necessarily follow each other and that security values conse- quently have a fixed relation to trade cycles', the matter of investing takes on an altogether new complexion. As it is seldom possible to buy at the bottom or sell at the top, averages must be the guide for action. It is generally unwise to invest an entire fund in one security. Any single investment, no matter what the care in making it, may go wrong. But with a well selected list of seasoned securi- ties the net result, based on the average performance of all, can be reckoned on with almost mathematical accuracy. It is also wise to diversify the types of investment, so as to secure reasonable pro- tection in face of changing economic conditions. Buying for per- manent investment should be done to take advantage of the long swings in the market rather than short intermediate movements. So called " dead " long term investments, for which there is little or no market are as a general rule to be avoided and should be con- verted into " semi-liquid " or " liquid " securities as opportunity may occur. There are, however, exceptions to the general rule — as for instance in the case of the shares of trust companies, so closely held that wide fluctuations may be recorded hetWeen sales, but which, on 1 John Moody. 2 A four per cent, bond maturing in forty years if bouglit at 70 yields 6% on an " if held to maturity" basis, while the straight return on the purchase price is but 5,71 per cent, if the increase in the value of the principal to maturity, spread over the intervening interest periods, is ignored. INVESTMENTS 369 a basis of earnings and dividends, can be trusted to show a steady increase in value. In such cases sales quotations must be supple- mented by accurate knowledge of earnings, management and future prospects. Whenever such a security must be converted into cash at the termination of the trust it is well to watch for a good opportunity to sell — perhaps long before the funds are needed. The necessity for a quick sale may sometimes result in a loss of many points. To sum up, the modern theory of investment requires : Up to date information Accurate statistical records Periodical investigation Security and legality of principal Averaging through holding a selected list Diversified investments Geographical distribution Buying long term issues when money is dear Buying short term issues when money is cheap Sound judgment and wide experience as the final basis of action. A block of one security held for differerit trust estates cannot be treated as a single problem — for the conditions affecting the invest- ment in different estates may vary so much as to dictate an entirely opposite policy in regard to buying, holding or selling. Thus con- vertibility at the termination of a trust may be the controlling factor in one account when in another account it is quite unimportant. The problem of increasing the principal and income of trust estates deserves the best efforts of the corporate as well as of the individual trustee. Turning over an estate, enhanced in value, at the termina- tion of a trust is a better creator of good-will for the trust company than any newspaper advertisement. The negative attitude of trying to prevent losses is not sufficient. The true= measure of the trustee's fitness for his task is the steady improvement of the trust estate in principal value, income, and markfctability, through intelli- gent investing. 370 THE MODERN TRUST COMPANY TYPES OF SECURITIES Styles in investments are almost as pronounced as in clothes. The records of the older trust companies show the evanescent pop- ularity of successive types of investments which, in their brief day, contributed possibly to progress, but more often spelled eventual losses and financial upheaval. So plank roads, toll roads, oil com- panies, gold mines, wild cat banks, and railroad shares turned out by the printing presses faster than ties and rails could be laid, have left their imprint on successive trust estates. Certain sound investments, on the other hand, have come but slowly into favor. Hardly to be distinguished at first from the mass of speculative securities, they have gradually demonstrated their value and finally reached- a strict investment basis. Sometimes a second generation has profited by the courage and imagination of the pio- neers who went before. De Lesseps and the French investors failed, but pointed the way for Roosevelt and the builders of the Panama Canal. Only within two decades has the industrial trust been developed. Formerly, outside of New England, the conservative investor and the corporation acting as trustee did not concern themselves with production and distribution as such. To-day the organization of industry in larger units, with- better methods of management and control, has led to the greater stability of industrial securities and their vastly increased importance as permanent investments. To foresee such development is one of the requirements of successful investing. In the early days of the telephone, competition, imperfect equip- ment and indiiferent service made telephone securities little more than a gamble. As scores of competing organizations disappeared, there emerged a strong company whose leaders understood that service, the fruit of sound management, was the test of ultimate success. So the investor was more and more attracted to this type of security. At last came the realization that the telephone is a " natural monopoly " and with this realization came government regulation and control of rates which limited speculative profits and INVESTMENTS 371 put these securities on a conservative investment basis. During the continuation of able management and good service the public will gladly pay adequate rates and permit a fair return on these invest- ments. Failure to hold the good-will of the country at large will inevitably spell the decadence of telephone securities. The principal kinds of investments ^ may be classified as follows : Government bonds United States Foreign State, county, municipal and district bonds Mortgages and ground rents Real estate Steam-railroad bonds Public service corporation bonds, including water, gas, elec- tric light and power, street railway and telephone Industrial bonds, manufacturing and mercantile Stocks Financial Steam railroad Public service Industrial. The war has once more made the obligations of the United States the best of all investments. With the security of the whole people and the power of taxation behind them, these securities stand in a class by themselves and offer an opportunity for safe investment, fair income yield and certainty of enhanced value second to none. So broad is the market that they can be readily converted into money at any time and at current quotations. Far sighted trustees have ab- sorbed and will continue to absorb huge quantities of United States Government securities. The process of retirement was already under way before the signing of peace.^ In the case of foreign government bonds the fact must never be lost sight of that a government bond is usually a simple promise to pay, not enforcible by legal process, but depending primarily on the iSee -'American and Foreign Investment Bonds," by Wm. L. Raymond. 2 See Reports of the Secretary of the Treasury. 372 THE MODERN TRUST COMPANY record for good or bad faith of the issuing nation. Fluctuations in price of government securities depend not alone on prevailing eco- nomic conditions throughout the world, but on the stability of the issuing government, its character, resources, expenditures, and amount of debt outstanding. Legally issued obligations of the individual states rank next to the obligations of the United States. In determining the credit of the various states it is important to consider the proportion of debt to assessed and actual valuation, and to population; the record of the state for good or bad faith ; constitutional provisions, character of the population, and more general conditions including prosperity and possibilities of future growth. Price fluctuations of state bonds reflect not only general monetary conditions, but the credit standing of the issuing state. State bonds as a rule are simply promises to pay, and ate not in the last resort enforcible by suit. It is consequently important to be certain not only of the ability of the state to pay its obligations, but of its will- ingness to do so. County, city and district bonds are payable out of taxes upon the property within the issuing area. Unlike the Federal Government and the state, these political divisions can be sued without their consent. In case of default, bondholders can bring suit and demand tax levies. Otherwise the general conditions applying to issues of state bonds apply equally to those of counties, municipalities, bor- oughs, villages, park commissions, school boards and the like. The legality of all governmental issues must be determined absolutely be- fore purchase. The opinion of counsel and the certification of the bonds themselves are necessary safeguards.: " County, municipal and district bonds are among the safest medi- ums of investment in the world. As far as= the record for past per- formance goes, municipal bonds are entitled to greater consideration than any of our state bonds except the very best. To-day the laws governing the creation of debt by municipal or quasi-municipal cor- porations are conservative enough to make investment, in the bonds of communities even of moderate size, exceedingly safe." ^ " We have always favored," says one successful executive, " those 1 " American and Foreign Investment Bonds," by William L. Raymond, p. i6i. INVESTMENTS 373 investments based upon security we could ^ee and those having the power of taxation behind them." Next to securities having the taxing power behind them come mortgages and ground rents, which are included in the class of legal investments, subject as a rule to provisions that the loans shall be upon improved real estate with a fixed limitation based upon actual or assessed value. As real estate mortgages are not subject to price fluctuations, and yield a higher income return than government se- curities, they are a favorite form of investment for trustees. Railroad bonds are, however, probably the largest class of securi- ties held by trustees as investments in trust accounts, and may almost be considered the standard form of investment security. As the value of railroad securities is dependent on the worth of the property and its earning power, it is essential to determine the relation of debt to assets and of net earnings to fixed charges. In addition, so many other factors are involved — such as origin, density and diversity of traffic; maintenance of way and equipment; future growth ; whether a first or subsequent lien — that expert knowledge is essential in determining the soundness of railroad securities. The market for railroad bonds, as for all fixed interest bearing securities, had a disastrous fall, due to the' war. From this it may be expected to recover slowly, with the return to more normal peace conditions. Large book losses were made and actual losses when bonds had to be converted into cash. Income yields, too, were ad- versely affected. On the other hand, unheard of bargains made it possible for trustees to invest to very great advantage. The uncertainty as to the future control of the railroads of this country has also depressed prices. Well secured first mortgage railroad bonds of the best systems are bound to regain their old popularity, no matter what the outcome, for a definite relation between the investment in the property and the return to security holders will undoubtedly be fixed.^ The securities of public service corporations performing a variety of services and operating natural monopolies have a value based on assets and franchise privileges. Strong corporations giving good service and having the confidence of the populations they serve are 1 See Transportation Act, igzo. 374 THE MODERN TRUST COMPANY in a happy position. Under opposite conditions, hostility and drastic regulation can easily force bankruptcy and result in public ownership or operation, or both. The craze for public utility consolidations, the resultant overcapitalization in many cases, poor management and failure to obtain the good-will of the communities served have re- sulted in many failures, which have been emphasized by war condi- tions. The obligations of sound, well managed and properly cap- italized public utility corporations have stood the test and proved the stability of the best public service issues. A property which, when taken over under the most unfavorable conditions by the bondholders, has been operated profitably and successfully by them may be re- garded as a sound and satisfactory investment. Industrial bonds have reached their present importance as invest- ment issues within recent years. Manufacture and distribution, a generation ago in the hands of individuals and partnerships, have to-day passed into the realm of big corporate business. With the creation of larger units of industry, have come better accounting methods and greater publicity of financial statements. As public regulation and control have reduced the yield from other classes of securities, investment funds have been steadily attracted to industrial bonds burdened by fewer governmental restrictions and holding out possibilities of greater profits. The keenness of competition, fluctua- tions in earnings and dependence upon the quality of management combine to cause greater variations in the prices of industrial securi- ties than of railroad and public service bonds. This field is full of pitfalls for the unthinking investor; for the modern investment department with complete statistical equipment and officers of in- telligence and sound judgment, it has alluring possibilities. The maturity of investment securities is largely determined by the condition of the money and investment markets at the time of issue. Temporary financing is often done through note issues when rates are high. In a cheap money market refunding operations pro- vide for the retirement of the shorter issues through the sale of long term bonds. Some foreign government bonds, such as British con- sols, are merely promises to pay without any, fixed maturity.^ Sim- ilar provisions are occasionally found in corporate bond issues. The 1 See " Stocks and Shares," by Hartley Withers, p. 335. INVESTMENTS 375 Lehigh Valley Railroad Company Annuity 6's of November 13, 1873, are an issue of this character. Even more liquid than note issues are U. S. certificates of indebted- ness, bank acceptances, and prime commercial paper running for brief periods, usually from thirty days to three, six, nine months or a year. Time and demand bank deposits are the most liquid of all investments. Stocks are seldom included among the securities a trustee can buy and it is often necessary to sell stocks received as part of the trust fund in order to comply with testamentary provisions. In the same way it is often necessary to sell " fights " to subscribe to new issues of stock, even when it is permissible to hold the shares forming part of the original estate. It is a well established rule that a trustee must not invest funds in such a way that the trust estate has to share losses as well as profits. The many capacities in .which a modern trust company acts may, however, cause it to hold large blocks of shares, sometimes amount- ing to the control of a business. Here e^fpert knowledge is abso- lutely essential. The trust company can become a valued ally of the business whose stock it holds, and the trust company's representatives may not only keep themselves informed, but give constructive help in problems of finance and management affecting the development and prosperity of the business. The management should always be left free to conduct the business after financial problems and ques- tions of policy are settled. On uninvested trust cash deposited in the trust company's banking department, a higher rate of interest may be allowed than on ordi- nary deposit accounts. When these funds are deposited in another institution, the same rate of interest that is received from the de- pository is credited to the trust account. Securities representing the uninvested trust balances may be bought and held by the company in order to secure a larger return than would be received from moneys on deposit. For this purpose it is usually^ advisable to hold short term securities, bank acceptances or prime self-liquidating com- mercial paper. 376 THE MODERN TRUST CQMPANY PURCHASE AND SALE OF SECURITIES . Bond Department The Bond Department,^ organized for the purpose of distributing securities, is of increasing importance in many trust companies. It competes with stock brokers and investment houses. With its close touch on the large clientele of the other departments, it can com- mand a steady and growing business — if the issues it buys and recommends are wisely chosen. It is closely allied to the statis- tical department from which it draws much of its information. Having a large distributing power, the bond department attracts the best issues and to that extent is of direct advantage to the beneficiaries of the trust department. When buying securities from or through the bond department, those officers charged with the responsibility of^aking trust investments rnust use just as intelligent care as when buying from outside sources. The practice of carrying in the company's possession securities which are available for transfer to trust accounts, has much in its favor ; a client can be shown a list of securities immediately available, and maturing obligations can at once be replaced. A word of cau- tion is, however, necessary. Unmarketable securities must never be found in such a list, nor be sold to trust estates when they cannot be disposed of otherwise without loss, nor can profits properly be made through the purchase of investments and their subsequent sale at advanced figures to estates in the interest of which the trust company is supposed to be acting. One large and successful trust company which maintains a department for the purchase and sale of bonds, in order to be free from any taint of suspicion, invariably buys and sells for its trust estates through other firms, even when it can secure better figures through its own bond department. It must also be remembered that when the trust company owns securities and later sells them to its trust accounts, a greater moral responsibility is assumed than when the investments ar? purchased in the first instance for the trust department from outside sources. 1 See Vigt 140. INVESTMENTS 377 MACHINERY OF INVESTING The weight of responsibility involved in making and changing in- vestments for trust accounts can be gathered from the fact that this is considered one of the most important duties of the general officers of the company. The current practice is to supplement the expert knowledge of the executive officers by committees of directors and sometimes small groups of stockholders who advise in regard to in- vestments. The further practice of having such committees ex- amine the list of trust investments at frequent intervals is to be commended. The British Public Trustee office has a permanent ad- visory committee of three well known bankers to supplement its own staff. Consultation with beneficiaries can often be of real value and, even when no enlightenment follows such conferences, good-will is bound to result. It is very easy by a little tact, consideration and sympa- thetic interest to get helpful cooperation instead of the antagonism which arbitrary methods may easily produce. The information gathered in the statistical and bond departments, their skilled personnel, their equipment and records can be of real assistance in the problems of trust investments. To take only one example, how many individual investors realize that trust indentures often require the purchase of a definite number of bonds for the sinking fund, or for retirement and cancellation, which cannot be secured without temporarily forcing up the price ? The trustee who has this knowledge can sometimes do a good turn for the trust estate by keeping track of such issues and, when offers are called for, naming a price above current quotations, taking a profit, and later buying back at a lower figure when bids become scarce and offerings more plentiful. No source of information should be despised, for grains of truth are found in most unlikely places. The days of denying admission to broker and salesman, of consigning circulars to the waste paper basket, and of considering an officer's title the badge of infallibility, are fortunately over. Expert advice from the bond and statistical departments is reinforced by all other available information. 378 THE MODERN TRUST COMPANY The securities are assigned to the various trust accounts under the direction of the trust officer. All accounts should be kept as closely invested as possible. Accurate records of the amount of balances for investment, of securities about to mature or subject to conversion, and of items of questionable value, should be readily available so that advantage can always be taken of favorable market conditions. The record of cash balances for investment ^ in each account may be a card index, on which the balance is shown and an abstract of the provisions as to investments. The index can be arranged alpha- betically under the names of the trust accqunts, or may be divided according to the size of the balance, whether for investment or not for investment, and the character of the investments allowed. If divided in any of these ways, each division should be arranged alpha- betically. When securities are engaged but not paid for, this fact can be noted in pencil on the card. Change^ in the balance of prin- cipal index are made daily from the balance slips of the trust book- keepers. % See page 350. CH-APTER XVII COMMERCIAL PAPERS Just as the trust company in its trust department develops a dis- tinct policy regarding investments, so it must develop a policy re- garding commercial paper, if it operates a banking department. The trust company of the past, it is true, sometimes conducted its banking department merely for the convenience of clients, and the funds of that department were either redeposited in a commercial bank or else used as a basis for investment, but it has already been shown that neither of these practices harmonizes with modern requirements. What bonds, notes and stocks are to the individual trusts, paper is to the depositor. WHAT IS COMMERCIAL PAPER? The banking department receives funds a«d gives in exchange the right to draw upon it at sight ; but it also^ makes loans and gives the borrower the right to draw at sight — that is to say, it credits him with a "deposit." "In making loans it is always a question whether the institution is acting wisely in granting the .loan ; in accepting deposits it is always a question how the funds received are to be used so as to yield an income and at the same time to provide sufficiently prompt resources for meeting depositors' claims if presented. Es- sentially the method of attaining these ends, is to acquire and hold, behind the deposit accounts, claims whose average maturity corres- ponds roughly to the activity of the general business of the com- munity. Such claims are found in obligations which grow out of the current operations of business and they are usually referred to col- lectively as " commercial paper." Commercial paper corresponds roughly to the loan and discount item reported by the ordinary bank 1 See Chap. VII. 379 380 THE MODERN TRUST COMPANY and it should bear a general relation to the amount of demand deposits. ESSENTIALS OF COMMERCIAL PAPER There is really but one " kind " of commercial paper, viz., that which represents the current obligations of' the business community. There are, however, many forms of such paper and a clear under- standing of their nature is essential to successful banking, even though they may not all be actively traded in by any given institu- tion. Whatever the form of the paper, certain underlying charac- teristics are indispensable, and the mere form of the paper cannot in any sense make up for the loss or weakening of one of these essentials. These essentials are: Short-term maturity Self-liquidating power Soundness in origin and in purpose of use. The need of short maturity is clear when it is recalled that the paper is held to protect demand obligations and 'that it must afford a steady inward stream of funds adequate to meet all calls for out- ward drain or withdrawals. The word "short," however, requires explanation. Customarily all paper is called short which does not exceed in life the average period of business credit in a community, but this period may be longer or shorter according to conditions in different communities, or nations. Nine months' paper may not be " long " in the Orient or South America, but unduly slow in the United States. Paper up to ninety days' maturity is considered satis- factorily short under present conditions and in some communities paper of longer life is considered an entirely suitable bank asset. The bank of course does not allow its funds to become engaged in paper of uniform maturity, but endeavors to arrange its paper by successive maturities, so that a steady stream of funds will be re- ceived from loan settlements. By the term " self-liquidating " is meant the quality which provides automatically the means of settlement. A loan of $1,000 to X, who wishes to use it in paying for a pleasure trip, is not self -liquidating because the trip does not result in any direct increase in wealth or COMMERCIAL PAPEk 381 provide means of settling the obligation; but a loan of $1,000 to Y, who uses it in paying transportation and other charges on a shipment of coal, is self-liquidating because it brings ±he coal to a point where it can enter into consumption and can thus provide the means of paying oflf the note at the bank. A substantial percentage of the paper held by the bank should be self-liquidating in this sense, as otherwise renewals will be called for, maturities will not be met, and the bank will be unable to meet the demands of its depositors as presented. Besides being short and self -liquidating it is essential that paper be soundly made. This does not refer to the legal form of the paper, which may be assumed to be correct, but to the principles gov- erning its making. If paper is made for an uneconomic purpose or in an uneconomic way, it is unsound even if technically " good." It may be collectible for a time but eventually troubles will arise. For example, the well known " renewal acceptances '' made during the European war gave on the surface every assurance of short term and self liquidation, but only a little study was needed to show that in most cases they were really bonds or long term obligations skil- fully " camouflaged." To hold much paper of this kind would be to make a bid for difficulties, perhaps for suspension of payment. In like manner where paper is being put out for pure financing pur- poses, one issue taking the place of the preceding and providing the means of settling the earlier loan, the situation betokens bad man- agement of the borrower's business. An example of this sort was afforded some years ago by the so-called " C'laflin paper " which had every appearance of compliance with the usual banking standards and was ranked " prime." When the failure of the Claflin Company occurred it was found that the issues of notes had been so made as to supply working capital and- that there Was little in the way of fluid assets behind them. Some 700 banks were holders of the paper at the time. TYPES OF PAPER In some foreign countries various types or forms of commercial paper are standardized and regulated by appropriate legislation. An example of such standardization is furnished by the British " Bills 382 THE MODERN TRUST COMPANY of Exchange " Act. In the United States there is no such legisla- tion applicable to the banks of the \yhole country or to the types of paper in which they deal. Prior to the adoption of the Federal Reserve Act there was relatively uniform state legislation regarding negotiability and other essentials of commercial paper, but the pre- ferred form of paper was governed by lodal custom only and this varied widely. In the Federal Reserve Act power was given to the Federal Reserve Board to define commercial paper in order to establish the eligibility of rediscount offerings. While there is no legal sanction or authority for the regulations of the Board, save as they bear upon the operations of Federal Reserve Banks, the fact that the Reserve Banks hold the banking reserve of the country makes the Board's decisions as to eligibility practically final in establishing desirable standards of paper. These decisions are be- coming more and more widely accepted as the system broadens its scope and the number of its members increases. ACTION OF RESERVE BOARD The Board's regulations now include the following types of paper officially defined : A promissory note is defined as an unconditional promise, in writing, signed by the maker, to pay, in the United States, at a fixed or determinable future time, a sum certain in dollars to order or to bearer. A draft or bill of exchange is defined as an unconditional order in writing, addressed by one person to another, other than a banker (as defined in the regulations), signed by the person giving it, requiring the person to whom it is addressed, to pay, in the United States, at a fixed or determinable future time, a sum certain in dollars to the order of a specified person; and a trade acceptance is defined as a draft or bill of exchange drawn by the seller on the purchaser of goods sold and accepted by such purchaser. Commodity paper is defined as a note, draft, -bill of exchange or trade acceptance accompanied and secured by shipping documents or by a ware- house, terminal, or other similar receipt covering approved and readily mar- ketable, nonperishable staples properly insured. A banker's acceptance is defined as a draft or bill of exchange of which the acceptor is a bank or trust company, or a firm, person, company, or cor- poration engaged in the business of granting bankers' acceptance credits. Types of promissory note, bill of exchange and trade acceptance in common use are shown herewith. M g o ta m O s 04 383 IL U) K 2 £ 3 Q o K o lU X H H >• < a Z 3 1 o o 1/ < a U ■s, 111 1- b. < u c a Ul Q < C E THE ANY (9 1 L Q^ : s < X > ' ^ 2 O AND TRUST YORK. > Z 1 in I z o Ul bi U 3 s _l < 111 c l» > P X z 1- 384 ' ^ i:^> 03 a o tP o "3 ^ :2 -^ « m •2 o a-2 "S 1-5 a J3 •^•as ■*» ^,8-« O o 2 >. ■ ■^ 5 OS 54 a w> i»»S u a base of ivee ma ich he < Q^ U 5^1 U •s . -a ^ i out c rchase, Unite u >> 1 s,^ . Q < • ■ (JO flj o ,d 1 -^^! 9in}n SfS 1 (lll^OJ^dj^O 30«|(1 'a JO aoi^B lO^ i< III '" g O 05 ipla^j^iaaa) aiqei :m 4) "W " »^ ■**>■• tf «*- •- 5 ^ (p«dagv§»Ba) 8a ■bl g s i 9^ .2'a " "S o *» a d C ^ .3 ■»» , liid«)df)Jv 0) o ^ 's S o 3 ^. H^S H Q 38s — 1 ^ -p. ^^ r" r" pT* L.,,i,.i: _*. -T- p- p p" p* r-r p. p r T— 1 u i j^ ' * s ^ _, , _., __ . , _ ^_ _ fel — — — — — — — "- — — — — — — — — — — — ..,.. "^ f^ _j _ _ _ _ -\ _ _ s ■^ ^-^ ^ — — — ■^ — — — — - — — — — — — _ , _ , 1 __ i — — 1 — — — — — — — — — — ' — 1 — — — 1 — z: zz zz r: — — — — — — — zz = — I I — - = ~ X < T n; ~ ~ zz _ — ~ zz — — - — : zzz - z — 1 y ,, 5 i; lit ^ lA s i i > u a < a a 1- « J a ffl w. =„ =- ,^ = = = 1 — = __ _^ = _^ = = ^^^ = = = ^= 386 COMMERCIAL PAPER 387 THEORY OF COMMERCIAL PAPER The theory upon which the Board has proceeded was marked out by the committee in charge of organizatioil of the Reserve system,^ in the following words : The conclusion that seems to be necessarily reached is that the Federal Reserve Act distinctly contemplates and provides for the use not only of two-name but also of single name commercial paper. This is seen in the fact that the act in the sections already referred to provides for the redis- counting not only of paper whose proceeds have been used in the particular classes of transactions referred to but also of that whose proceeds are "to be used " in that connection. At one time during the progress of the bill through Congress, the provision was even broadened by the insertion of words including for rediscount such paper as might give rise to funds which " may be used " for the purposes referred to in the act. It is believed, therefore, that Congress clearly and unequivocally intended to recognize under the provisions of the law both classes of paper. This, however, was upon the distinct understanding that such paper, whether it bore one or more names, was not to be admitted to rediscount unless it evidently arose from the classes of transactions referred to or was so clearly for the purpose of providing funds for such transactions as to admit of no doubt. In the second place, however, it is believed that paper carrying two names bears on the face of it the evidence of a strictly commercial origin which single-name paper never can, without collateral evidence, supply. There is, therefore, a prima facie case in favor of two-name paper which does not exist in that of single-name, and the question is suggested how single-name paper when admitted to rediscount as it evidently must be under the terms of the law, shall be prevented from being used as a means to obtain current capital or to furnish the basis for speculative operations. Various methods have been currently suggested, among them the plan of requiring each piece of paper thus presented for rediscount to be accompanied by a certificate on the part of its maker, or of the endorsing bank, or both, that it has originated in connection with a transaction of the permitted kind. Another method that has been put forward is to require such a general certificate on the part of each borrower, insisting that such certificate be made once and for all, or perhaps at periodical intervals. Still another suggested plan is that of employing a form of note which shall incorporate into its own text a statement that it represents funds whose use is desired for a transac- tion of the permitted class. Of these various suggestions, the last is per- haps the best and there may be no harm in putting it into effect, but neither it nor any of its predecessors would be likely to meet the requirements of the case completely. It is believed that this end can be accomplished only by some process that will give absolute assurance of the use of the funds 1 Report of Technical Organization Committee, H. Parker Willis, Chairman, 1914, page 76. 388 THE MODERN TRUST COMPANY advanced by the Reserve Banks in the way conteipplated by the law. Clearly, however, the absolute assurance that the particular sum of money advanced by the Banks on rediscounted paper has been used in the way prescribed cannot be obtained in practice, nor is there any use in obtaining it, if there be certainty that an equal sum drawn from the liquid resources of the concern receiving the advance is so applied, "the purpose of the Federal Reserve Act is thus fundamentally satisfied if evidence be given that the advances made are made for a commerfcial purpose as shown by the fact that the person or concern in whose favor they are. made is engaged in actual business of the kind referred to and is in a liquid condition. This fact can be ascertained only by a direct ^dit of the affairs of the concern, repeated as frequently as circumstances require, in order to renew the assurance of liquidity which is regarded as the fundamental and essential test of the good faith of the concern in making application for funds, not to furnish capital for new enterprises or to take the place of capital that has been sunk, but to carry through short period transactions. POLICY AS TO PAPER It is thus seen that both single and double name paper have been regarded with favor from the beginning of the movement which has culminated in the present Reserve system, and that the essential re- quirement in buying or discounting such paper is not its form but the character of the credit behind it. This was clearly brought out by the Board in one of its earlier circulars in which the following requirements were stated : The Federal Reserve Board proposes to prescribe the following basic principles for the guidance of Federal Reserve Banks and member banks: No bill shall be admitted to rediscount by Federal Reserve Banks the pro- ceeds of which have been or are to be applied to jiermanent investment. Maturities of discounted bills should be well distributed. It is the well- established practice of European Reserve Banks to invest only in obligations maturing within a short time. It is a general rule not to purchase paper having more than go days to run. The maturities of these notes and bills are so well distributed as to enable those Banks within a short time to strengthen their hold on the general money market by collecting at maturity or by reinvesting at a higher rate a very, substantial proportion of their assets. Acting on this principle, the Federal Reserve Banks should be in a position to liquidate, whenever such a course is necessary, substantially one- third of all their investments within a period of 30 days. Departure from this principle will endanger the safety of the system. It is observance of this principle that affords justification for permitting member banks to count balances with Federal Reserve Banks as the equivalent of cash reserves. Bills should be essentially self-liquidating. Safety not only requires that COMMERCIAL PAPER 389 the bills held by the Federal Reserve Banks should be of short and well-dis- tributed maturities, but, in addition, they should be of such character that it is reasonably certain that they can be collected when they mature. They ought to be essentially "' self-liquidating," or, in other words, should represent in every case some distinct step or stage in the productive or distributive process — the progression of goods from producer to consumer. The more nearly those steps approach the final consumer the smaller will be the amount involved in each transaction as represented by the bill, and the more auto- matically self-liquidating will be its character. OPEN MARKET DEALINGS Many banks find that they cannot entirely satisfy their require- ments by the discounting of paper presented to them by their own customers. The fact that they cannot do !so leads them to deal in commercial paper in the open market. This open-market dealing is usually carried on through commercial paper houses or brokers whose function it is to take the paper of borrowers and dispose of jt wherever they can find a market. Every such note broker will have a list of offerings which he will send at frequent intervals to those institutions which he believes are likely to have funds to spare. What shall be the policy of the trust company with reference to such paper? If its customers are so numerous and their obliga- tions so good as to call into play the entire available lending power of the company, it will seldom purchase open market paper. From time to time, however, the company will have a slackening demand. Par- ticularly is this true if it be situated in a district where business is at all seasonal. It will then have a " peak " of business demand each year or perhaps twice a year, with low periods intervening. During these periods of small demand it will desire to keep its funds em- ployed in such a way as to get some return and yet to have them available when the local demand reappears. Such an institution may, and frequently does, simply deposit its spare funds at interest with a city bank, but the practice of buying sound commercial paper, including bankers' acceptances, is growing in popularity. The hold- ing of this paper affords an opportunity tQ diversify the banker's portfolio so as to give him some outside resources upon which to draw in the event of credit stringency developing in his own locality. He may then be called upon to carry his customers beyond the 390 THE MODERN TRUST COMPANY maturity of their paper and may desire to have some means of getting quick relief. Moreover, in a community where the local paper is not always eligible for rediscount with the Federal Reserve Bank, owing to longer maturities or other conditions, the trust com- pany may think it worth while to provide jtself with a portfolio of rediscountable paper by buying outside its own locality. It wishes, of course, to obtain paper which combines a maximum of return with a maximum of safety, and it will favor the paper of large and solvent borrowers, wisely dealt in, and, if possible, ejigible at Federal Reserve Banks. Bankers' acceptances have within the past few years become a favorite investment of this kind. There i? also a large and steadily increasing volume of single-name paper, — much of it quite as liquid as acceptances or other two-name paper, — which affords an at- tractive holding. The extent to which a bank should go in the pur- chase of such paper is always a matter of judgment and depends greatly upon the scope and intensity of the local demand for funds. DANGERS OF BUYING COMMERCIAL PAPER There is no absolutely safe rule of conduct in the purchase of com- mercial paper, nor is there any one type of paper which is far superior to every other. Much has been said in recent years of the accept- ance, as if the mere making of paper in acceptance form necessarily implied that it was a superior product or in some way preferable to single-name paper. This can be true only if the credit behind it is superior. During the disorders in business, and finance which have accompanied the European War it has often appeared that the accept- ance was being used to float obligations anything but liquid. Bank- ers' acceptances have often amounted to ndthing more than finance bills, while trade acceptances have been made for the purpose of putting on the market what were little else than collateral loans pro- tected by stocks of unsold goods, or long-term and slow accounts embodied in paper form. There has been a great volume of such slow and rather questionable paper masquerading as acceptances, and the effect of these flotations has been to make buyers of paper look more carefully than ever to the credit behind their holdings. COMMERCIAL PAPER 391 This has given an impetus to the study of credit from a scientific standpoint and to the practice of requiring and analyzing complete and careful statements of condition. It is probable that in the future much less will be heard about the merits of two-name paper or the advantages of acceptances, and that much more stress will be laid upon the liquidity of paper as tested by sound credit standards. Changes in banking methods have greatly decreased the importance of the form of paper obligations and have greatly increased the im- portance of the credit or liquidating power which underlies them. THE BEST TYPE OF PAPER It follows that the best type of commercial paper is that which embodies certain fundamental principles and is not necessarily " two- name " or " one-name," nor is it necessarily " acceptance." What is most important is to know (a) that the maker of the paper is responsible, (b) if it be an acceptance that the acceptor is responsible, ,(c) that the paper represents a bona-fide transaction in goods which are saleable. ' Any paper that satisfies these requirements is sound commercial paper. Experience has shown that the intervention of some insti- tution which may check or certify to the character of transactions under commercial paper, is very desirable in view of the high de- velopment of the business life of the country and the difficulties at- tendant upon complete and scientific credit study. A form of paper devised by John S. Jenks, Jr., of Philadelphia, Pennsylvania, is in- tended to combine the merits of single-name and two-name com- mercial paper, and at the same time to add needed features. The so-called Jenks Bill is a piece of paper representing a transaction be- tween responsible persons, but provision is made for its transfer or sale without establishing the contingent liability which, in ordinary usage, is created when the seller of such paper endorses it or becomes the acceptor of it. The Jenks Bill provides for attaching to the paper a certificate, made out by the fiduciary institution through 392 JIINKS BIIJi — ENDOBSEMIiNT 393 n g 14 i 8 m ft A' P 9 I gg XI! g9 1^ P i^ 394 395 396 THE MODERN TRUST COMPANY whose hands the paper has passed, furnishing assurance as to the character of the operations. A carefully developed form of paper of this kind, immune to legal attack and based upon commodities of a standard and tested sort, represents the highest type of liquid commercial asset. CHAPTER XVIII SAFE DEPOSIT DEPARTMENT INTRODUCTION The necessity of making adequate provision for their own securi- ties has resulted in the establishment by many trust companies of departments for safe renters, both to secure a direct return from the expenditure occasioned by the erection of vaults for the companies' own use and to add to the convenience of their customers. In the larger cities one finds separate companies doing only a safe deposit business, as well as safe deposit departments connected with banks and trust companies. In smaller places, separate organi- zations are not often found. The company assumes full respon- sibility for the safe-keeping of valuables, and the small fee which is paid for the service covers both storage charges and a practical guarantee against theft or other loss. Where land is valuable, the safe deposit vaults are often in the basement of the building. They may also be more than one story in height, the basement vaults being devoted to the storage of bulky packages, and those on the main banking fldor to the renting of safe deposit boxes. Each box — which is usually made of heavy japanned tin or light steel — fits into a compartment just large enough to contain it. The case in which these boxes are kept is made of steel and each door is fitted with a lock, which can be opened only by using two diflFerent keys. One key is retained by the com- pany while the other is held by the safe renter. As no duplicate is kept of the renter's key, he should always be impressed with the necessity of keeping it safely, as its loss will require cutting open the lock at his expense. Access to the box can be secured only by the renter or his duly authorized representative in conjunction with a representative of the company. Boxes are made of different sizes to suit the needs of customers. They are usually about 21" long, 397 39^ THE MODERN TRUST COMPANY with varying height and width. The smallest boxes are about ij" high by 4^" wide, inside measurements. The rentals vary according to the size of the box or safe, the smallest sizes costing but a few dollars a year. Larger sizes are provide4 for the use of bankers and corporations, the rental of which may amount to several hundred dollars per annum. There should be an ample force to guard the vaults both day and night, and during business hours to attend to the wants of customers. It is customary to have a locked grill door at the entrance of the safe deposit department, at which a watchman is stationed who admits only those entitled to enter. In addition, the door can be fitted with an electric locking attachment operated from the desks of the employees who are stationed at various points. These em- ployees should always be of good address^ courteous and obliging, and of undoubted honesty. They should, of course, be under bonds. While the vaults are open, the department should never be left with- out an adequate force of attendants. The safe deposit department should be furnished with ample facilities for the customers' convenience. There should be rooms for committee and other meetings, as well as individual desks pro- perly protected, or small private rooms for cbupon cutting and exami- nation of securities. There are usually special apartments for ladies. Stationery, envelopes, coupon-cutters, scissors, rubber bands, and other conveniences are provided for the use of customers. In many companies the waiting rooms attached to the safe deposit depart- ment are attractively furnished and are supplied with newspapers, periodicals, stock sheets, and sometimes with a ticker and telephone service. The safe deposit vaults are usually open to the general public only during banking hours unless it is necessary to open a trifle earlier and close a little later on account of the baftkers, brokers, and other customers whose boxes must be in their offices during the same busi- ness hours. A record is often kept of all persons entering and leaving the de- partment, and of the number of the box visited. In times of panic or great stock market activity, it has sometimes been found impossible to keep such a record without unnecessarily delaying the customers. SAFE DEPOSIT DEPARTIMENT 399 As soon as the box is returned to its place, an attendant examines the desk or room occupied by the customer, to see if anything has inad- vertently been left and to prepare it for the next occupant. This is the more necessary when, as sometimes happens, the forgotten' article is not a cane or an umbrella but a thousand-dollar bond. By means of the record of visitors and examination of desks, it is almost always possible to locate the owner of lost property. It helps, too, to refute the occasional charge that a valuable paper was forgotten or lost during a visit to the department, a charge which usually ends in the document being found in. its proper place. The attendants should never consent to take care of open boxes while their owners tempo- rarily absent themselves, but should always insist on the boxes being returned to the vault, even if they are taken out again in a few minutes. The safe renter should always see his box opened and closed, and while out of the vault it should be constantly under his eye. Owing to the great value of the contents of public safe deposit vaults, their management must be such as to provide every possible precaution to prevent loss. When legal questions arise as to rights of and liability to box renters, action should be taken under advice of counsel. Access should never be permitted except to the box renter, his deputy or legal representative. In the case of corpora- tions, properly aiithenticated authority mu^t first be presented and, except to look for a will, no access to the box of a deceased renter should be permitted until the executor or administrator has presented a proper certificate of his appointment. When the ownership of property contained in a safe deposit box is in dispute, prompt steps should always be taken, by legal process if necessary, to determine the rightful owner. If two or more persons must appear together in order to obtain access to a box, a label with the number so required should be at- tached to the front of the box. The company assumes such full re- sponsibility in regard to these details that great care must be taken to prevent errors. In addition to securities, which form the "largest part of their con- tents, safe deposit boxes are made the receptacle of all sorts of objects having intrinsic, sentimental, or other value — from a lace handker- 400 THE MODERN TRUST COMPANY chief to the ashes of a deceased relative. Ehiring the McKinley- Bryan campaign, large quantities of gold were hoarded in safe deposit boxes, and it is not uncommon after the death of a safe renter to find in his box gold, bank notes, or bonds bearing coupons long since over- due. Among the most curious visitors to the department are those with whom the accumulation of wealth has become a mania and who come daily to see and finger their securities. Many persons deposit their wills in their safe deposit boxes ; indeed, this is the place where such papers are usually first sought for. Special vaults are often provided in which boxes containing title papers and other matter of more bulk but less value than stocks, bonds, and jewelry, can be left for safe-keeping and at the same time be easily accessible. In other vaults, trunks and cases contain- ing silverware, books, works of art, and other personal property are stored. Engravers and publishers often place their steel, copper, or electro- type plates in safe deposit vaults when their own buildings do not afford the needed protection, and manufacturers avail themselves of this protection for models, patterns, and assets of all sorts which are liable to damage or loss through fire or theft. Some safe deposit companies also issue certificates of deposit covering securities left in their hands for safe-keeping. An en- graved certificate reciting the terms of the deposit and enumerating the items received is given the owner, and the securities are only deliverable on the return of the certificate. If an individual owns a single bond, the cost of a certificate of deposit is less than the rent of a box, and in case the security is needed it can be procured by express or registered mail through the return of the certificate prop- erly indorsed. In the case of coupon bonds, the safe deposit com- pany may also agree to cut the coupons as they mature, and hold them ready for delivery. The charges for such deposits of securities are based on the character of the property. Coupon bonds and other securities transferable by delivery are taken at a higher rate than stocks and registered securities. Gold and silver coin and bullion, jewelery and precious stones, are charged for according to value and space occupied. SAFE DEPOSIT DEPARTMENT 401 As the business of the safe deposit department is simple, its books and records need not be complicated. The card index is well suited ■for most of its records, although sometimes large and handsomely bound books are preferred, as they are usually in the view of cus- tomers and present a more attractive appearance, and as the em- ployees of the department are generally not pressed for time. It is, however, best to have the simplest form of accounts in order to obtain the most accurate results. All cash receipts should be paid to the receiving teller, and rebates should be paid out by the paying teller. If more convenient, the trust department receiving teller or the note clerk can act as the cashier of the safe deposit department. The general principle that records and cash should not be in the hands of the same individuals should, however, be observed. The system of records here described is that of the safe deposit department of a trust company. When safe deposit vaults are run as an independent business, a set of general books is also required. One system of records is used, its details being adapted to the somewhat differing requirements of the two main divisions of the business, — the renting of safes and deposit of valuables. In companies where securities are received for safe-keeping and certificates of deposit are issued against them, the same forms are used as in the case of the storage of packages containing valuables, with necessary verbal changes. As such deposits are not often re- ceived, trust companies usually preferring to encourage the owners of securities to open attorney accounts in the trust department, it does not seem necessary to go into further details in regard to them. RENTING OF SAFES As soon as the identity of the customer is satisfactorily established and a decision has been made as to the size of the safe desired, the rent is paid and a receipt is issued in which are stated the limitations of liability assumed and the rules subject to which the safe is rented. The receipts are numbered consecutively and bound in books with stubs attached, or else with alternating thin leaves on which a carbon copy is taken. 402 THE MODERN TRUST COMPANY In some companies it is the practice to issue this receipt in the form of a contract or lease. The actual wording of this, as of all other safe deposit forms, should be passed on by counsel, before RECEIPT FOR REHT OF SAFE. — [Front] THE MODERN TRUST COMPANY No.. .19, Recefved from- -Dollars for rent of Safe No in the Vaults of this Company, from_ -I9 to_ -I9-, during which term, subject to the conditions and regulations indorsed hereon, it shall be the property of the lessee. The liability of the Company, by reason of the letting, is limited to the exercise of their accustomed dili- gence to prevent the opening of said Safe by any person other than the lessee or his duly authorized representative, and is assumed upon the ex- press agreement that such opening shall not be inferred from proof of partial or total loss of the contents. Safe Depfnii Sufi. [Back] •» a t! C UTJ >L ^ i.'rt « « li u o.SK„-Sk OJ3 lA rt a o > ♦- o , :S«|I-IS; ,S-.2 tiS " H •SgslaS^.ag S g-c o a u « o K S =. n E o V ri 'l\ S a 5 ■sag = o b ^ O ■" o « 2 S * t) » - " ii o a a Is^ >'S o > bJB n FC P " 2* S^m '^ " .. " O ^"^ au3 JJcn V e 1> "^ ai (^ o i S* «>.a ".S S •! °.S fe 2 ml II I "I sgoS'2'3 O v> C p „ « a 'ho - - m « w « III ■S2 " " ■ ^ ui S « ^ o K .a S 3 i« » = ==5 3 — S ° aUEU Kb B-= K p « ; M 2 £ o SgoSS H.S3.S s »°ag •g-§s« 41 4)*t3 u I rt adoption. Most of the records of the department are, for con- venience, kept on cards 4"X6" in size. At the time a safe is rented, a receipt ahd identification card is signed by the customer, acknowledging that he has received the keys for the box and the receipt for rental, and agreeing to its terms and SAFE DEPOSIT DEPARTMENT 403 conditions. At the bottom of the card is a brief statement which is signed by the renter when the box is surrendered and the contents have been removed. The other side of the card is devoted to the safe number, the name and address, and the description of the renter which is recorded for RECEIPT AND IDENTIFICATION.^ [Front] Date,- -19. Received from The Modern Trust Company a receipt for rent of a Safe numbered , which is leased by = subject to all the rules and regulations of said Company as indorsed on said receipt, and to all such other reasonable rules and regulations as may hereafter be adopted. > also acknowledge having received keys for said Safe. "Witness : hereby surrender Safe No. and certify that . have removed contents of same. [Back] Name,. Address, . Business,. Place of birth, — Name of father,- Name,- -Safe No- Date of birth, - Password,- Name of mother,- Address, - Busiuessr- Place of birth, Name of father,. Date of birth, - Password,- Name of mother,- purposes of identification. It is better to note fixed facts rather than possibly changing personal characteristics^ such as color of hair, weight, etc. The amount of information taken varies greatly in different companies. The place and date of birth and names of parents, in addition to the customer's name, address, and occupation, 4Q4 THE MODERN TRUST COMPANY are probably sufficient. A password is still sometimes used as a further means of identification. The identification side of the card is printed so that the descrip- tion of two renters can be placed on it, as .many safes are rented in APPOINTMENT AND IDENTIFICATION OF DBPDTY. — [Front] Appointment of . Deputy. Safe No Date, : 19 — hereby constitute and appoint to be Deput , with power to open and have access to Safe No. rented by (or any other Safe that may hereafter rent), in the Safe Deposit Vaults of The Modern Trust Company, and to dispose of its contents as freely as could do , until revoke this authority in writing. Witness : ; L.S. Date, . Above appointment of Deputy is hereby revoked. [Back] Description of Deputy. Address, . . . Business, > Place of birth, Date of birth, — Name of father, Name of mother,- Password, Signature of Deputy, Witness : joint names. The receipt and identification cards are white in color and are filed alphabetically by the renters' names. In the case of SAFE DEPOSIT DEPARTMENT 405 two individuals renting a box as joint tenants, special forms are some- times used specifying the rights of both or of the survivor to have access to or to surrender the box and to appoint deputies. These facts can also be included in the rules printed on the receipt or con- tract issued when the safe is rented. The card showing the appointment and identification of a deputy is used when the renter desires to give another person the right of access to his safe. One side of the card gives the form of appoint- ment, signed by the renter, which authorizes the deputy to open and have access to the safe and to dispose of its contents until the au- thority is revoked in writing. Below is a space containing a revoca- tion clause. The other side of the card gives the description and signature of the deputy, the data taken being the same as in the case bf the renter. This card should differ in color from the renter's receipt and iden- tification card already described, and should be filed directly back of it. This index forms a complete alphabetical record of safe renters and their deputies. Authority to enter a box should always be general and unqualified. Owing to its liability in case of error, the trust company should de- cline to accept orders authorizing access to procure a certain paper or security. The right of the deputy to have access to the box ends on the death of the safe renter. Cash transactions are recorded on ledger cards bearing the name and address of the renter, number of the safe, date rented, rate and term. The ordinary ledger ruling is used, the card being wide enough to repeat it. There are columns for date and amount of rental due, and the date and amount of each payment. The cards are white, 4"X6", each has a tab showing the month of expiration so that each month's bills may be made out without handling any but the cards for that period. The cards are filed numerically by safe numbers, and form an index of rented safes. The case in which all keys for unrented safes are kept takes the place of an index of safes available for renting. Bills for safe rent should be mailed long enough in advance of the date of expiration to enable the customer to renew for another year or to give notice that the safe will be surrendered. The bill specifies 4o6 THE MODERN TRUST COMPANY the number of the safe, the term covered, and the amount due, with the added statement that the letting is subject to all the terms, con- ditions, provisions, and limitations of liability provided for in the original receipt. At the same time that the bookkeeper prepares the bill he fills out a credit slip with the same data : name and address, number of safe, term, date, and amount due. These credit slips are passed to the receiving teller or other officer to whom the rents are payable. The slips are printed on white cards, and are filed alphabetically by names. When the bill is presented for payment, the credit slip is taken from the index and compared with the bill. It is then stamped " paid " and is passed through as the teller's voucher from which all bookkeeping entries are made, the cash being placed in CORPORATE RBSOLUTIOir GIVIirG ACCESS TO mDITIDnAL To The Modern Trust Company: — At a meeting of the Board of of the- held at on the day of , 19 .__ , the following resolution was duly adopted : Resolved, that . be and he is hereby authorized to have access to the Safe (No.^ ) in the Vaults of The Modern Trust Company leased to this Company, until this authority is duly revoked, of which written notice shall be given to said Trust Company. (Attest) (Signed) (Seal) ^ Secretary^ Praidtnt, the general books to the credit o.f the safe deposit department and in the books of the department itself to the credit of the safe renter. When rebates are made, a charge slip is prepared in the safe deposit department giving the necessary details, and the cash is paid out by the paying teller. When a safe is rented by a corporation. and, by authority of its board, access is given to an individual, a cestified copy of the resolu- tion delegating such power should be required. The trust company should specify the wording for such a resolution and should require SAFE DEPOSIT DEPARTMENT 407 the certified copy to be on a form which it furnishes. A white card 4"X6" can conveniently be used and can be filed behind the renter's receipt and identification card, exactly as in the case of deputies ap- pointed by individual renters. If the safe is rented by a corporation which by a resolution of its board permits one or more of its officers to have access to its box, a certificate of election, duly executed and attested, should similarly be required and filed whenever there is a change of officers. Other forms are often used to provide forcases when the customer cannot be present in person. Such forms are based on those already described, and as they provide for special cases do not affect the general plan of organization.'- DEPOSIT OF VALUABLES Immediately on receipt of the trunk, box, or parcel received for storage, the package should be sealed so that it cannot be opened without breaking the seal. Exceptions to this rule must be made in the case of deposits to which frequent access is desired. The certificate of deposit is bound and numbered in the Scime way as the original receipt for the rent of a safe. It specifies the nature of the deposit, its value, the term for which deposited, and the amount paid. The certificate also gives the conditions and regula- tions subject to which the deposit is received, including a statement on the part of the customer that it contains no certificates of stock, registered or coupon bonds, money, jewelry, or precious stones. On the certificate is also a form of receipt to be signed by the customer relieving the company of all liability on surrender of the deposit. As in the case of safe renting, a receipt and identification card is signed by the depositor, acknowledging that he has received the cer- tificate and agreeing to the terms on which it is issued. A form of release and receipt for the deposit is also printed on the card, for use in case of the loss or non-pi?oduction of the certificate at the time the deposit is withdrawn. 1 See Proceedings of Trust Company Section, American Bankers' Association, 1904! Report of Special Committee on the Classification of Legal Decisions relating to Safe Deposit Companies; Duty and Liability to Box Holders, and n compilation of the Rules and Forms of Typical Companies. 4o8 THE MODERN TRUST COMPANY The other side of the card contains the description of the depositor. The same form is used as in the case of safe renters, except that the certificate number is substituted for the safe number. The cards are 4"X6" in size, are filed alphabetically, and are of a buff color to distinguish them from the cards representing safes. The appointment and identification of deputy card is similar to that already described, except that it is of a different color and CERTIFICATE OP DEPOSIT. — [Front] U OS S Q. D.U. 3 O Nc- THE MODERN TRUST COMPANY Date,_^ -ig — This is to certify that- has deposited with The Modern Trust Company for safe keeping ^ said to contain ^ valued at $ _has bpen paid to this Company. for which the sum of $ . In consideration whereof the said deposit is to be safely kept by this Company, subject to the conditions and regulations indorsed hereon, for the period of , and on the expiration thereof or sooner if demanded by said depositor, it shall be returned to in good order upon the surrender of this certificate and identification of the depositor if required. Sa/e DipKit Stipi. [Back] n) 3 5 8. o o •a " Q/l a^* ° rl o ■$ . ■a 'm IB a * .3 - K " o Is S •-II •a a ■ E o iS U .S u a " bo .2 o 5 < V 1-4 >» 3 V (U 3 2 =. ^ •= . .Q •a „ ir o C "U .« TO *j O C Pi ^ !3 l-t ID S fJ • g" & a XI .§ -S o u 'S §■£ » - E? ui i3 ■S 'o bo o " d XI J) i °- g * ' O V w a V j: o Ul S -a ' t; -s "'Is 0^ O ^.h K nj 4-> ^ « 2 H ^=3 a. S _ o applies to a certificate of deposit instead of tb a safe. The authority given is general and authorizes the deputy to open and have access SAFE DEPOSIT DEPARTMENT 409 to and dispose of the contents of the package covered by the certifi- cate until the power is revoked in writing. It is filed immediately behind the depositor's card. The ledger card is of buff color and is in all other respects like the safe rental ledger card, except that the number of the deposit re- places the safe number. The cards are filed numerically and have tabs showing the month of expiration. RECEIPT AMD IDENTIFICATION FOR VALUABLES. — [Front] Date, -~ , 19 . hereby acknowledge the receipt of Certificate of Deposit No for deposited by the Storage Vaults of The Modern Trust Company, valued at $ and containing neither certificates of stock, registered or coupon bonds, money, jewellery, or precious stones, and hereby agree to the rules and regulations of The Modern Trust Company in force at this date and such reasonable rules and regulations as may be hereafter adopted. Date, , 19 Received fi-om The Modern Trust Company" the above mentioned deposit and hereby release said Company from all liability therefor. [Back] Name, ; — Certificate No. Address, . Busiuessr- Place of birth, Date of birth, : Password,- Name of father, Name of mother, Name, Address, - Business,- Place of birth, Date of birth, — ___ ~- Password^ Name of father, Name of mother, 4IO THE MODERN TRUST COMPANY The bills specify that they are for the renewal, until a given date of the deposit of valuables covered by a certoin certificate the numbei of which is given. Credit slips are used like those already described, and in the same way. They are on buflf cards and bear the number of the certificate instead of the safe number. For purposes of identification a stout linen or manila tag should be attached to each package and bear the number and date of the certificate and name of the depositor.- As a matter of convenience to customers some companies now have motor delivery services of their own. Where this is not done, it is well to make arrangements with a local express company to call for and deliver valuables at a fixed scale of charges. A general agree- ment should be made between the trust company and the express company, defining the liability of each, and a written order should always be taken from the customer. A printed form should be used which contains an order on the customer to deliver to the ex- press company the packages described. This is signed by its repre- sentative and given to the owner on receipt of the goods. When valuables are delivered to their owners by the express com- pany, a similar receipt is taken from the owner or his representative and is retained by the express company, Vvhich has previously re- ceipted for the packages on receiving them from the trust company. GENERAL BOOKS The record of persons entering the department shows the date, name, number of safe or deposit to which aqpess is had, and, if possi- ble, the desk or room occupied. Such a record is valuable, and should be accurately kept. All safe deposit departments use one or more books in which a record is kept of rentals, renewals, and surrenders. A single book can be made to combine a cash book and a record of safes rented and surrendered, and valuables deposited and withdrawn. It con- tains columns for the date and name of customer, followed by sec- tions covering rentals and renewals, surrenders, and a section in TIATE HAiSZ ■REMTAia_A.ND BENEWALS 6^M DejKMJU V". RfOUl . 3,.. Frwn Aofouat FUd M«L ■"r* B.U rr- DoILn USNihl DcJKn ILiriUu ' SCBREKDERS JCnUMdm fiuninwl bj IKuukl m. PaDoaai >l u. ita Na DoIIUl 1 llMtt, IUb.U JS. "!!=• h hi v^ 11. i; L 1 1 1 1 1 t 1 T 1 i( \i — -- t i 1 _ ; — ~ . i — 1 J [ "~r — ' j! _ ^! — . 1 1, — 1 1 ':] )l II \ ^nf — ■ 1, 1 — ~ 1 ! ■ 1 — 1 " ' ~ 1; ' ~~ ~ * . "^ ^ ~~ — . _ _ THE MQPERN TIlUST COMMJSTY ;■,-. Safe Deposit Ctep^timeht ■•"' Comparative Monthly Repotfcfor SAFES No. Rental Safes rented as per last report ' Add Safes: rented during month Total Less Safes surrendered during Bionth T6tal Safes rented this date " " " one year ago Increase Decrease certificat;es of deposit No. Charges | 1 Certificates outstanding as per last report Add Certificates issued during month Total Less Certificates cancelled during month Total Certificates outstanding this date ■" •'" " one year ago Increase 1 Decrease CASH Received from Safes rented and renewed (net) " Certificates of Deposit issued and renewed (net) Total for month ■■ 1- 411 412 THE MODERN TRUST COMPANY which the bookkeeper notes in the proper columns that the other entries resulting from each transaction have been made. The " rentals and renewals " section contains subsections covering both safes and deposits. The former shows, the number of the safe, whether a rental or renewal, the rate and period on which it is based in months, the date from which rental commences, and the amount paid. The section covering deposits is exarctly similar except that " charges from " replaces " rental from." The " surrenders " section is similarly divided, showing the safe number, rate, and period on which the rate is based, and amount of rebate, if any; deposit number, rate, period and rebate. The remaining section shows that the transaction has been en- tered on the renters' or depositors' index, and the ledger card. The last column is for the controller's initials after the entries have been made and the bookkeeper has initialled the proper columns. Each rental or deposit of valuables is entered from the stub of the receipt or certificate book. Cash entries are recorded from the credit or charge slips. The book is closed at convenient periods and the data thus obtained are used as the basis for comparative monthly reports. These reports show the number and value of safes rented, renewed, and surrendered, the value of certificates of deposit issued and cancelled, and the total business of the department, with the figures for the corresponding period of the previous year and the resulting increase or decrease. CHAPTER XIX SAVINGS FUND DEPARTMENT In the large cities of the East, where savings banks have existed for many years, few trust companies have a savings department. In the West, and, especially in smaller towns, trust companies usually take savings deposits. Sometimes, as in the Illinois Trust and Sav- ings Bank of Chicago, the savings department is the most important r^ 459401 I hereby signify my assent to the reeulations of the Savings Department of !nie Uodem l^^wtX^ompany Addresff' Occupation Dat»of Birth Farents'Damea Name of wife or hosbaud tjnmarried ( J ■Widowed | Birth Place Date Colored *»ttHVtoMAyai.1»97. branch of the company's business. In most trust companies, how- ever, the savings deposits are not as large as the deposits subject to check. For the care of savings deposits it is usually well to have a sepa- rate savings department. This department should always be clearly 413 414 THE MODERN TRUST COMPANY indicated by signs, so as to prevent confusion between the customers of the banking and savings departments. Tri the savings department windows are provided for " New AccountsJ" " Receipt of Deposits," and " Withdrawals." The paying teller of the banking department may attend to the payment of withdrawals. Accounts are opened at the " New Accounts" window, where a specimen of the depositor's signature is taken on an individual depositor's signature card, and in case of joint depositors, on a joint account signature card, with other information which will serve as a means of future identification. When t^o people desire to open a joint account, they are requested to sign a contract on the back of WITHDRAWAL NOTICE $ Payable,—- 19 '- To THE MODERN TRUST COMPANY, Savings Fund Department. I hereby give ten days' notice for the withdrawal of , Dollars, according to the rules. Book No Name, ._ .._ Residence, ; . Money due on a holiday paid the preceding day. This notice will be cancelled if money is not withdrawn within 30 days from date. the joint account signature card. If more than two open the ac- count they are treated as an unincorporated organization. The cards are filed numerically. At the time the sighature card is filled in a depositor's index card is made out, showing the name, address and the number of the account. The depositots' index cards are filed alphabetically according to the names of the depositors. When an organization, incorporated or unincorporated, desires to open an account, authority for opening the account and the designation of SAVING FUNDS DEPARTMENT 4IS certain individuals to act for it, are filed together with a copy of its by-laws. These papers are filed alphabeticklly. Cards of closed accounts are kept as a separate index. The de- posit book bears the number of the account and the name of the depositor on the cover, and contains the rules and regulations. The cash pages have date columns and cash columns. The depositor is required to present the book each time a deposit or withdrawal is made. It is a common although not a universal practice to restrict the amount which can be deposited in a savings account each year, and to fix a maximum limit for the account. When a deposit is made, a deposit slip is filled out, if possible by the depositor, with the num- ber of the account, name and address of the depositor, date, and amount of deposit. The book with the deposit and slip is passed to the savings de- partment receiving teller who proves the deposit with the slip, initials the slip, enters the deposit in the book, and passes the book to the pass book control clerk. This clerk enters the number of the book and the amount of deposit on an adding machine which has two sets of numbers, each with several banks of keys, and then after verifica- tion by asking the name of the depositor and the amount of the deposit, passes the book out to the customer. The receiving teller lists the amounts of the deposit slips on an adding machine as many times as desirable or possible during the day, taking a sub-total each time before passing the deposit slips to the bookkeepers. At the end of the day the receiving teller takes a grand total which must settle with the cash received and the grand total of receipts shown by the pass book control clerk. The receiving teller then fills out his daily proof sheet, signs it, and passes it to the paying teller who checks it, signs it and sends it to the general ledger bookkeeper. Savings accounts are not subject to check. The savings depart- ment either requires, or reserves the right to require, notice before withdrawals are made. When such notice is given, the amount to be withdrawn and other particulars are written on a card. These cards are filed by payment dates and account numbers, and are de- stroyed by the withdrawal clerk after payment has been made. When the depositor comes to get the money, he fills out a withdrawal 4i6 THE MODERN TRUST COMPANY slip with the date, account number, name and address of the deposi- tor, and amount received. The paying teller compares the signature on the withdrawal slip with the specimen on file, satisfies himself as to the identity of the depositor and initials the slip to show this fact. On the left hand page of the pass book the transaction is entered in figures. On the right hand page the deposit or withdrawal is written out in words. The paying teller then passes the book with the withdrawal slip to the pass book control clerk, who enters the number of the book WITHDRAWAL SLIP THE NUMBER IS ON THE COVER OF YOUR BOOK Write the amount you wish to draw out in plain figures. Dollars under the word " Dollars," Cents under the word ** Cei^s.' Book No.. BRING your book WE DECLINE TO PAY UNLESS VOU DO. WRITE HERB THE AMOUNT VERY PLAINLY IN WORDS, ALWAYS SIGN AS YOU DID AT FIRST. .19.— Received of THE MODERN TRUST COMPANY Savings Fund Department .Dollars Signature^, Present Address_ examined by ENTERED BY and the amount on the adding machine. After asking the customer's name and the amount of the withdrawal, the cash and the pass book are handed out. If the entire balance is withdrawn the pass book control clerk keeps the book. The paying teller several times during the day takes the total of the amounts of the withdrawal slips, and then turns them over to the bookkeepers. At the end of the day the teller takes a grand total of the withdrawals and then makes up his daily proof sheet. The payments must prove with the pass book control clerk's total of withdrawals. After proving, the teller SAVING FUNDS DEPARTMENT 417 signs his daily report and sends it to the general ledger bookkeeper. There is a pass book control clerk located between each paying and receiving teller. This grouping is maintained where there are several tellers. The deposit and withdrawal slips, as they are passed back to the bookkeepers, are sorted in mimerical order for each bookkeeper and he enters the items by machine on the depositor's ledger sheet. The depositor's ledger sheet is 7% inches in length, UiDG-EB SHEET J L_J L_J L 8% inches broad, and is ruled on both sides with columns for the old balance which is brought forward with each change; date and amount withdrawn ; date and amount of deposit ; date and new bal- ance ; and interest. After the items are entered and a book mark is inserted at each account, showing the changes for the day, the with- drawal slips are passed to the block control clerk. The accounts 4i8 THE MODERN TRUST COMPANY are divided into blocks of 500 accounts each. The block control clerk, on receipt of the slips, enters them according to blocks on an adding machine of the same kind that is used by the pass book con- trol clerk, listing the numbers of the accounts in one set of figures and the withdrawals and deposits in the other set, using the upper shift for deposits and the lower shift for withdrawals. He enters the blotk number on each slip. There may be several installments from the bookkeepers on the same block. At the end of the day he totals the slips for each block and enters the totals in the block control ledger. This ledger sheet is the same width and 1% inches longer than the depositor's ledger sheet. At the top of the sheet the block number, as from i to 500, the month and the year, are shown. It is divided into four columns, as follows: day, old balance; date, debit ; date, credit ; date, new balance. On the left edge of the sheet under day the numbers from i to 31 inclusive, are printed. There is a ledger sheet for each block, and the old and new balances should be recorded each business day even if there are no changes in the block for that day. The entries in this ledger are made by machine. After the bookkeepers have finished postiqg for the day they run through the ledgers, making use of the book marks, and total all withdrawals and all deposits in each block and the numbers of the accounts, while the block control clerk is posting his ledger. The bookkeepers' totals prove with the debits and credits to each account in the block control ledger. The grand total of numbers of ac- counts for each block and the debits and credits to the accounts in each block prove with the totals obtained for each block by the pass book control clerk. The debits and credits to each block are then totalled in the block summary sheet. These figures show the volume of business for the day and prove with the totals of the pass book coritrol clerk. All entries on the block summary sheet also prove with the savings department deposits account in the general ledger. , This method furnishes a double check on every total. Interest is allowed on even dollars and for calendar months only. The rate varies in different places. It is usually from three to four per cent, per annum, and is added to the accounts semi-annually. CHAPTER XX LIFE, FIDELITY, AND TITLE INSURANCE AND SURETYSHIP The first corporations in this country authorized by law to act in fiduciary capacities were originally organized as life insurance com- panies. The insurance of lives and granting of annuities formed the mainstay of these older companies while their trust business was in its infancy. The gradual tendency has been toward a se- paration of the two forms of business, so that now some companies bear witness to their original character only in their names, others still carry some insurance business on their books but take no new risks, while in recent years many companies in states having a gen- eral trust company law have reinsured their remaining insurance risks, have eliminated the word " insurance " from their titles, and have taken advantage of the provisions of the general law. A few trust companies still conduct flourishing life insurance de- partments. In such cases the insurance department, although related to a certain extent to the banking and trust departments, has a se- parate organization, is subject to different state laws, and is super- vised by the insurance deprartments of the states in which it does business. One highly successful company is organized as a stock corporation, but its life insurance department is on a mutual basis. In this case the insurance department bears the entire expense of the home office, including the cost of banking and trust depart- ments. The statement is made that this is more than repaid to the policy holders by the benefits of such an intimate connection with the other departments. It is certainly to the advantage of the stockholders to have the expense account elijninated from the general profit and loss account. A trust company doing an insurance busi- ness is required by law«to keep a special reserve to secure its policy holders. Other forms of insurance now more often found in connection 419 420 THE MODERN TRUST COMPANY with trust functions are fidelity insurance and the business of acting as surety on official and other bonds, and title insurance. Until twenty-five years ago nearly all fidelity insurance, or guaranteeing of the honesty of public officials, officers and employees of corpora- tions, etc., was done by giving the personal bonds of individuals owning real estate. As soon as the advantages of a corporate guar- antee were realized, it was but a short step to fidelity insurance, and the business of becoming security on bonds required by law, con- ditioned for the faithful performance of contracts and other obliga- tions. The only obstacle to fidelity insurance was a prejudice in favor of the personal bond ; in the surety business, public sentiment had to be aroused and laws enacted before the corporate bond could be accepted by the courts. Many trust companies which have done a fidelity or surety business in the past are either taking no new risks or are assuming no obligations of this character except when fully protected by counter indemnity constituting adequate security for the risk assumed. Another development of the insurance idea has been its exten- sion to real estate titles. The title insurance companies have vastly simplified real estate transactions. Laboriously made and costly searches and briefs of title, accompanied by an opinion of counsel, are done away with, and a guarantee against possible loss issued by a corporation of recognized financial standing, supersedes an indi- vidual opinion as to the validity of the title. The corporate con- veyancer now occupies a position in the business community as well recognized as that of the corporate trustee.^ A fully equipped title insurance company has in its possession an abstract of every deed, mortgage, sheriff's sale, and lien of record relating to each property in the district in which it operates. These records are its stock in trade and enable it rapidly aild accurately to prepare' abstracts, make searches, and attend to the multifarious details of real estate transfers. The title company can prepare the title papers, make the settlement and issue .its settlement certificate, put the deeds and mortgages on record, and guarantee the validity of the title. Its office force includes both lawyers and conveyancers, 1 See " Trust Company Law," by John H. Sears, " Trust Companies as Conveyancers, Abstractors and Title Insurers,'' p. 182 et seq. LIFE, FIDELITY AND TITLE INSURANCE 421 whose technical knowledge is requisite to a successful conduct of the business. Even where the Torrens system^ of registration of real estate titles has been put into operation, the business of the title companies still flourishes. This is explained by the large number of transfers still made by the old methods, and by the fact that the usual ab- stract must be procured before a title can be recorded for the first time under the Torrens system. In some states, trust companies are perniitted to do a title insur- ance business, in others the exercise of the two functions is pro- hibited. In Pennsylvania, title insurance has been successfully com- bined with trust functions. The code of laws of the District of Columbia provides that corporations may be formed in the District of Columbia for the purpose of carrying on any one of the follow- ing classes of business : — " First : A safe deposit, trust, loan, and mortgage business. " Second : A title insurance, loan, and mortgage business. " Third : A security, guaranty, indemnity, loan, and mortgage business : Pro- vided, That the capital stock of any of said companies shall not be less than one million of dollars, and that any of said companies may also do a storage business when their capital stock amounts to the sum of not less than one million two hundred thousand dollars." 2 The act thus prohibits the exercise of trust functions and the assump- tion of insurance risks by the same company. The gradual development of the trust company idea along other lines seems to demonstrate that a company devoted to the care of estates should not assume future obligations, such as an insurance business entails. The maintenance of an insurance department, however successful, is not likely to act as an argument in favor of the appointment of the company as executor or trustee. The won- derful growth and development of insurance companies in this country have resulted from the organization of the great corpora- tions devoted solely to insurance, and the J)resent tendency toward a separation of insurance from general trust business seems likely to continue. The profits of insurance of any kind depend on the volume of 1 See p. 326. 2 Code of Laws of District of Columbia, section 71 s. See appendix, p. 461- 422 THE MODERN TRUST COMPANY business as well as on its management, and in this element of suc- cess, too, the large insurance company has an advantage over the trust company which, as one of its many functions, carries on an insurance business on a limited scale. CHAPTER XXI GENERAL ACCOUNTING THE CONTROLLER No matter how perfect the system upon which the business of a trust company is conducted, its practical application is in the hands of officers and employees who are only human and therefore liable to make mistakes. Some may become unprogressive in their methods, while others may be too eager to introduce changes which, though attractive from the standpoint of one depa4l:ment, do not properly fit into the general plans of the company. It therefore becomes necessary to lodge in some one person or group of persons the authority to maintain and supervise the accounts and records of the company. In a small company the work may be done by the general officers with the assistance of the general ledger bookkeeper. In a large company the general officers are properly relieved of such duties. Another officer known as the controller, or sometimes as the auditor, is engaged. This officer becomes the final link in the bookkeeping chain, and his authority should extend to all departments of the company. Changes in accounting methods that are at all radical should be submitted by him to the general officers, and in some cases action by the board of directors is advisable. Continuity of policy and uniformity of records are prime requisites in the permanent success of any business, and while a trust company should always be progressive and ready to adopt genuine improvements, it should not be continually making changes that are of uncertain value. When once a satisfactory system is installed, it should be maintained reasonably intact. If it is based upon proper principles, further improvements will be in the nature of a development rather than an alteration, and as such may be readily introduced. It is a part of the controller's duty to see that the system adopted 423 424 THE MODERN TRUST COMPANY is faithfully carried out in all departments^ and by every employee. At the same time he should be constantly on the alert to detect weak- nesses and to discover means of saving labor and securing more accurate records. To do this, a man must possess a good knowledge of accounts and considerable force of character, coupled with a large degree of tact. He should be appointed by the board of directors and be directly responsible to the president for the proper discharge of his duties. No changes in the accounting system should be made by any clerk without the approval of the controller, and only the president and the board should have the right to direct that changes be made contrary to his judgment. The controller should prepare, or at least approve, all reports or statements issued to the public or compiled for the use of officers and directors. He should verify the settlements of depositors' ac- counts and the statements rendered to beneficiaries by the trust department. He should examine and initial all entries for the receipt and delivery of securities owned by the company or held by the trust department, and he should be authorized to make at frequent intervals, but without previous announcement, examina- tions of all the departments of the company. In these examinations he should rely mainly upon comprehensive tests which he can make without attempting to verify each item. It should also be a part of his duty to approve, before payment, all vouchers for expenses, repairs, etc., whether for the company's account or for the accounts held in the trust department. The controller's work, if done ef- ficiently, will serve as an internal check upon the work of the office, and go far to detect and correct clerical errors which, if allowed to pass unnoticed, detract from the reputation of a company and at times prove a cause of serious financial loss. In addition to this, his constant oversight and firm grasp of the details of the company's business will, in most cases, restrain an officfer or employee from tak- ing the first false step to disgrace and ruin. COMPANY'S GENERAL LEDGER The results of the company's business in all its departments are brought together in the general ledger. The accounts should be so GENERAL ACCOUNTING 425 arranged that trial balances can be taken off at a moment's notice, and the real condition of the company be clearly and fully shown without rearrangement or analysis of figures. The order of the accounts in the ledger is determined by the order in which they should appear on the balance sheet. Under the two main divisions of principal and income, credit accounts come before debit accounts. The quicker assets head the list. The exact names of the accounts may vary, but they should always be the simplest that will clearly denote the purpose for which the account is opened. In the general ledger of every trust company, most of the follow- ing accounts will be found : — PRINCIPAL 'Assets Cash Demand loans Time loans Commercial paper Stocks Bonds Mortgages Postage stamps Accounts receivable Accrued interest receivable Real estate Banking house, furniture, and fixtures Taxes paid in advance Liabilities Deposits subject to check Due to bSmks and bankers Special deposits Savings deposits Certificates of deposit Certified checks Dividends unpaid Accrued interest payable Expenses payable Taxes payable Bonds Capital stock Surplus Undivided profits INCOME Expenses Taxes Interest paid depositors Errors in cash Profit and loss Interest receipts Commissions Safe deposit rentals Errors in cash Profit and loss " Cash " is one of the most active accounts, and as it is the quickest asset, appears first on the list. All cash, whether on deposit or in the company's vaults, is carried in this account. In the daily cash report the amount is itemized to show notes, specie, and checks in vault, and the balances on deposit in other banks. 426 THE MODERN TRUST COMPANY Next in order are " demand loans," " time loansj" and " commer- cial paper." The details of the various sorts of loans are shown in auxiliary books. The commercial paper account is often called " bills receivable " or " bills purchased." The notes which it represents are usually unsecured, although occasionally they are accompanied by collateral. Then come the permanent investment securities, " stocks," " bonds," and " mortgages." A detailed record of these securities is kept in an auxiliary set of ledgers. Real estate loans are carried in the mortgage account. Ground rents, such as are found in Phila- delphia, are included under the general head of mortgages in state- ments to the commissioner of banking, but are usually carried in a separate account on the books of the Philadelphia trust companies. When a trust company issues its obligations, secured by mortgages held specifically as collateral security, a separate account " mort- gages to secure bond issues " appears in the general ledger. Postage stamps when purchased should be charged to a " postage stamps " account. A petty postage stamp book can be kept, in which both cash sales and deliveries to the various departments are recorded. The total cash sales and the ampunt of stamps delivered are credited monthly to the general ledger account, while each de- partment is charged through the expense account with the cost of the stamps it has used. " Accounts receivable " can be made a receptacle for assets of uncertain value. "Accrued interest receivable." This account is charged by jour- nal entry at the end of each month with the proportion of interest which has been earned on investments and loans during the month, and at the same time the income account " interest receipts " is credited with the same sum. The object of this entry is to credit earnings each month with the proportion of income actually accrued instead of with the items which happen to be paid. The accrued returns on each class of investment are shown in itemized form in the auxiliary ledgers. It is well to show real estate held for investment purposes sep- arately from that occupied by the company's office. The " real GENERAL ACCOUNTING 427 estate " account shows the total book value of all real estate owned by the company, exclusive of the building it occupies. " Banking house, furniture, and fixtures " represents the cost of these items. The value of land, building, furniture, and fixtures may be separated if desired. A further subdivision may also be made to show the cost of safe deposit vaults, title plant, branch offices, etc. "Taxes payable." The balance in this account may appear on either side of the ledger. All taxes when paid are charged against this account. When the balance shows as an asset, it represents taxes paid in advance. When the balance appears as a liability, it represents the taxes that have accrued and are unpaid. This account is credited at the end of each month with approximately one- twelfth of the year's taxes, while the expense account " taxes " is charged with a, similar amount. At the end of the year any balance in "taxes payable" is brought down as an item belonging to the succeeding year. " Deposits subject to check " gives the net amount due individual depositors as shown in detail in the individual depositors' ledgers. If more than one class of deposits are received, the best plan is to have separate ledgers for each class of deposits and to show the balance of each in the general ledger, so that the company's liability on account of funds subject to check, court accounts, or other special deposits, can be ascertained from the general balance sheet. " Due to banks and bankers." Deposits received from other financial institutions should be carried separately from the ordinary individual check accounts, as they are a very quick liability and may be drawn against in large sums, particularly when funds are scarce. It is therefore necessary to provide an ample reserve against this class of deposit and to watch carefully its fluctuations as shown by the general ledger balance. Special deposits are often received and held subject to agreements which preclude their being classed with the ordinary deposits. Such items are kept in a " special deposits " account, or they may be included with certificates of deposit. As savings deposits are not subject to check, and as a higher 42? THE MODERN TRUST COMPANY rate of interest is paid, it is necessary to ^how the net liability on account of savings deposits separately from the other sorts of deposits. " Certificates of deposit " represents special deposits, not sub- ject to check, the obligation being issued in favor of the depositor or according to his direction, and being playable on demand or in accordance with the agreement on the face of the certificate. The general ledger account is credited with all certificates issued and is charged with those paid. The balance of the account represents the amount of outstanding obligations as shown by the stubs of the certificate of deposit book or by an auxiliary ledger. " Certified checks." When a check is certified it is charged against the depositor's account and credited to the general ledger account. When the check is finally paid, the amount is charged against " certified checks." On the date when a dividend is declared, a journal entry is made charging undivided profits and crediting " dividend account " with the amount of profits to be distributed. As a matter of convenience, it is well to open a separate account, numbered to correspond with the number of the dividend declared. Payments made on account of dividends are charged to the account of the dividend to which they belong. " Accrued interest payable " is credited by journal entry at the end of each month with the amount of interest accrued on the various classes of deposits. By the same entry " interest paid de- positors " is charged with a similar amount. The balance standing to the credit of " accrued interest payable " represents the liability for interest accrued and unpaid. When interest is credited in the depositors' accounts, the total is charged against this account and credited to " deposits subject to check," or any other class of de- posits on which interest is being paid. " Expenses payable." The balance to the credit of this account represents the amount of unpaid bills. At the end of each month, the total amount shown by the record of expenses is credited to " expenses payable " and charged against " expenses." All ex- pense payments are charged against " expenses payable." By this GENERAL ACCOUNTING 429 method all expenses, whether paid or not, are charged against the period in which they are incurred, and the unpaid balance is shown in this account. " Taxes payable " has already been described. When the bal- ance appears as a liability, it represents the amount of taxes accrued but not yet paid. When trust companies issue bonds secured by mortgage or other collateral, the total amount of the issue is shown in a general ledger account. Such bonds are a direct obligation of the trust company, whose profit consists in the difference between the rate of interest it pays and that which it receives on the mortgages or other securi- ties in which the proceeds of the sale of the bonds are invested. " Capital stock " and " surplus " represent the permanent capital employed in the business. The " undivided profits " account represents all undivided profits except those in the surplus account, unless another account is opened for profits held as a special reserve. " Undivided profits " is credited at the close of each fiscal year with the net profits as shown by the profit and loss account. " Interest receipts " is credited with all interest received on loans and investments, including income from real estate. It is charged with payments for interest accrued on investments at the time of purchase and other similar items. At the close of the fiscal year the balance is credited to the profit and loss account. In the " commissions " account receipts from special departments, such as the trust or title department, are credited. Special income receipts, such as commissions on account of underwriting syndicates, etc., are also credited to this account, and in general such items as are distinct from the ordinary returns from investments, and yet not of a character to be properly credited directly to profit and loss. " Safe deposit rentals " are entered as a separate item so as to show the return upon the capital invested in the safe deposit depart- ment. All " errors in cash " are charged or credited to this account, as the case may be. The totals of both sides of the account should be shown on the monthly balance sheets. The " profit and loss " account is credited with all gains on invest- 43° THE MODERN TRUST COMPANY ments when sold, and charged with all losses on investments. At the close of the fiscal year it is credited with all income in the way of interest, commissions, or other receipts, and is charged with the balance of expense and taxes accounts. A tharge may also be made for depreciation of the building and equipment. The balance of profit and loss account, representing the net gain or loss for the year, is closed to undivided profits as noted abo\re. These closing entries are made through the journal and should be accompanied by a full explanation. Except in the final balance sheet for the fiscal year, the profit and loss account should be shown on both sides of the balance sheet so as to avoid any danger of giving a false impression. Unless this is done, a credit balance of $25,000 might equally well represent a gain of that amount or losses of $30,000 offset by gains of $55,000. I " Expenses." A journal entry is made on the last day of each month, charging " expenses " with the mqnth's total as shown by the record of expenses and crediting "expenses payable." The expense account is credited for amounts received for check books, printing, express charges, etc., as shown by a petty cash receipts book, and the balance of the account is charged at the end of the fiscal year to profit and loss account. " Taxes." On the last day of each month a journal entry is made, charging " taxes " and crediting " taxes payable " with one-twelfth of the approximate taxes for the year. The taxes account then shows the actual amount of taxes chargeable against the business. At the close of the fiscal year the total is charged to profit and loss. "Accrued interest payable" is charged by cash entries with in- terest paid to depositors. By journal entry at the end of each month, " interest paid depositors " is charged an4 " accrued interest pay- able " is credited with the amount of accrued interest as calculated on the average daily balances of total deposits. At the semi-annual interest periods the entry is adjusted to agree with the amount of interest actually paid: " Interest paid depositors " is charged to profit and loss at the end of the fiscal year. Additional accounts which have to be opened to fit the require- ments of special lines of business should be made as far as possible to conform to the general system. GENERAL ACCOUNTING 431 The general ledger should be closed only at the end of the fiscal year, when all the balances of both debit and credit income accounts are transferred by journal entry to profit and loss, and the balance of profit and loss is transferred to undivided profits. In this way all the income accounts are closed out preparatory to starting the business of the new fiscal year. Postings in the general ledger are made from a cash book and journal. The cash book has separate columns for the most active accounts and a miscellaneous column for inactive accounts. The journal should be small, as its entries are comparatively few. Most journal entries are made at the end of each month and the close of the fiscal year. The general ledger bookkeeper's work may include simply the books in which the results of the business are assembled, or it may be expedient also to put under his care some of the closely related sets of auxiliary books in which the records of the company's investments are kept. The time spent in taking off a daily trial balance is more than repaid by the immediate detection of errors. For a small trust company a trial balance book or daily statement is usually sufficient. In this the names of the general ledger accounts, written or printed in the left-hand margin, are followed by the daily balances in a series of vertical columns, one column for each day. In a large company, where detailed information is needed, a comparative daily balance sheet is more satisfactory than a simple trial balance. The sheets, kept in a binder or on file, are bound at the end of the fiscal period. In the first column are the names of the general ledger accounts, assets and liabilities at the top of the sheet, income and expenses in a separate section below. The four cash columns show the bal- ances at the close of the previous day's business, the balances at the close of the current day's business, and the increases and de- creases over the previous day. Below the total of assets is a line for " net change in assets." Yesterday's total of assets settles with to-day's total by adding the net change to the smaller of the two totals. The gross increases and decreases are also made to settle by adding the net change to the smaller total. In this way the cor- rectness of the postings is proved. Net earnings for the current year appear as a liability. The totals of yesterday's and to-day's 432 THE MODERN TRUST COMPANY liabilities are settled by adding the net change,* as in the case of assets. The income and expenses section of the balance sheet gives the earnings for the current year to the date indicated. The difference between the total income and total expenses shows the amount of undivided current earnings. The expenses and net earnings settle with the gross income. Dividends declared and paid from current earnings appear just above the undivided balance of earnings. By the use of a comparative daily balance sheet, the items which change from day to day and the resulting balances are instantly ascertained. If a daily trial balance is not taken off, the changes in current earnings, deposits, loans, and reserve are often followed by keeping an abstract of these accounts. A comparative monthly balance sheet.- showing the increases and decreases of the month, is also used. The only difference between it and the daily sheet is the color of the paper, and the headings of the increase and decrease columns with a blank space for the dates instead of the word " yesterday." A simple monthly balance sheet which can be kept in a small binder and be readily consulted without having to use the large comparative sheets, is often a convenience. The principal and income sections are arranged in two columns ; in the principal sec- tion assets on the left and liabilities on the right hand side of the page, and in the income section earnings on the right and expenses on the left. If the cash book is not readily available, a daily cash report is made out. The sheet is divided into three columns, — for receipts, payments, and cash balance at closing. In the first two appear the names of the more active general ledger accounts, with blank spaces in which the less active accounts can be. written. Under loans, investments, etc., space is left to show the; .various items in detail. The total receipts for the day plus the balanqe at opening settle with the day's payments plus the balance at closing. In the third column, the cash balance at closing is analyzed to show the amount of notes, specie, and other cash items in the vault and the balance in each depository. The total deposits and percentages of reserves may also be shown. b ^H = HZ = = — — zz: = = i^ = — — — — 1 r 1- lA t3 ^ ^^ , ■ 1 ec 1 — — — — — — 1 g 1 o g B 2 g 1 — ~~ •^ ■ ■ — — 8 1 , .M § 1 J 1 1 ^ i :B< 1 1 1 a t J 1 2 1 9 ^ 1 J a 1 1 3 1 1 J n S 1 s 5 •a i 1 o S a ■i OS i 1 ^1 [— 1 r— 1 f— 1 1 1 p-i ■— ^ p— p*. — _ __ r"^ — — — - — — — — - - — — — — — - = = = = = p = = = = = = = = = =:: = = =: = ^ ' ~~ "■ " ■ •1 ~ ~ ~ *~" — — — — - — — — — - - — — — — —] — — — : — - o : : : : — - — — — — — - 1 { _ ^ ^ — _ ^^ I - ._ _ _ __ — _ — ^ — — n Z H 14 Si U o p; f o .". p>i s M •s 1 3 ? 1 1 1 a i g 3 i 1 ■5 1 1 1 1 3 o 5 "a 1 .9 S 1 3 1 1 1 1 .3 1 1 s 1 1 a 1 ■ m ^ J n D J J « 1= ! li 1 __ , , .^_ ^ J "e J ^ 5 1 GENERAL ACCOUNTING 433 In reports to stockholders there should' be the fullest publicity consistent with the best business interests of the company. The practice of mailing copies of the report to' the stockholders in ad- vance of the annual meeting is to be commended, as the opportunity to examine the figures beforehand makes possible a more intelligent discussion of them at the time of the meeting. In published reports, clear, condensed statements are better than much detail. To make it easy for the stockholders and others to compare successive periods, the form of report should not b^ changed without good reason. In reports of condition to the state banking departments, the forms provided in accordance with law must be used. As these statements are often published either by advertisement or in ofificial reports, other public statements may well be based on them. Government regulation of banking institutions has done much in recent years to promote uniformity in bookkeeping methods. The names and order of the general ledger accounts may be modified to suit the forms required by the authorities, and many tedious and elaborate calculations will be avoided if the books are'so arranged that a state- ment of condition is merely a copy of the daily balance sheet. AUDITS AND EXAMINATIONS Fortunately most bank and trust company officials are true to their trust. That more are not so is, in part at least, due to the fact that examinations of securities and accounts are not made as fre- quently and thoroughly as they should be. The community gives but little thought to the bank officer who, often on a small salary and constantly subject to severe temptation, works on year after year with absolute fidelity. Occasionally among the thousands of such men one succumbs to temptation, and the newspapers exploit his ruin, which not only affects himself but often involves in serious loss the bank in which he has been employed. As all banks are examined in some way or other, the public, in the event of a defalcation, is too ready to jump to the conclusion that all examinations are ineffective and serve only to give a false sense of security. Those who have devoted any study to the subject 434 THE MODERN TRUST COMPANY know that embezzlements of large amounts have occurred, almost without exception, in banks where, if examinations other than those by government officials have been made at all, they have been per- functory and utterly inefficient. Examinations of corporations doing a banking or trust company business are of two quite separate and distinct kinds: first, those made by representatives of a government department; and second, examinations made by or for the directors and stockholders. In the latter class may also be placed the examinations conducted under the auspices of clearing houses. When the Federal Reserve system was established a new means of examination and oversight was introduced. This was cooperative in its nature since the Reserve Banks are essentially cooperative institutions. The act provided that Reserve Banks might examine their members at will, while it also provided that state institutions becoming members should be subject to examination by the Federal Reserve Board. The apparent scope and severity of the provision tended to keep trust companies out of the system until it was made plain that the new provisions were intended to reduce, not to increase, the annoyance inevitably incident to examination while at the same time rendering the whole examination system stronger and better through mutual aid. To-day the Federal Reserve system accepts the examination reports of state banking departments in lieu of its own examinations. Copies of these reports are furnished to the Reserve Banks by state banking departments upon authorization of the in- stitution affected. The Reserve Banks likewise receive copies of the Comptroller's reports of examination of national banks and thus become fully advised of the banking situation in their districts. So efficient is the system that in various places local clearing house examinations have been given up or amalgamated with the Reserve examination system and it is the prevailing opinion to-day that the expense and trouble of examinations have- been reduced and their efficiency increased so far as concerns members of the system. Many trust companies — indeed far the larger number — are still outside the reserve system, however, and for various reasons are unlikely to become members. The problem of examination as af- fecting these, therefore, remains much the same as before. This GENERAL ACCOUNTING 435 problem is essentially public in its nature ^'nd involves a measure of state control or oversight. The public is more or less familiar with the examinations of national banks made by examiners representing the Comptroller of the Currency. In most of the states the banking laws provide for a commissioner of banking, or some similar official, who through his staff of examiners makes annual or se'mi-annual examinations of all trust companies. In addition to this examination, each com- pany is required to furnish sworn statements of condition twice a year, and sometimes oftener, on days named by the state authorities. This element of state control has resulted from the rapid growth and increased importance of trust companies and, although opposed at first as an infraction of corporate liberty, it is now generally recognized as both salutary and necessary. The state banking de- partments have done good service in checking what has seemed at times an almost mushroom growth, and in forcing weak companies to take proper precautions to safeguard the interests of their cus- tomers. In comparing the system of national bank examination with the methods of the state departments, it must be remembered that the national banking system has had more time to develop and that the trust companies, which have been springing up in such numbers in recent years, were at first almost without control, while they exercise broader powers and are more complex in their organi- zation than national banks, and hence present greater difficulties to the examiner. It is unfortunate that politics are so often involved in the ap- pointment of examiners, who should always be trained men chosen for fitness alone. The examiner who begged a bank officer he was supposed to be examining to " go easy " with him, as he had just been transferred from the position of oleomargarine inspector for the dairy commissioner, appreciated the humor of the situation and took the only possible step to secure a first lesson in banking. The officers of the state banking departments, whether experts or not, should have the good-will and cooperation of the trust compa- nies under their jurisdiction, with resulting -advantages to both. At the same time, the public as well as the directors of trust companies should bear in mind that examinations made by government officials 436 THE MODERN TRUST COMPANY do not have for their primary object the detection of clerical errors or of any except gross frauds. These examiners are employed to ascertain that the bank or trust company is doing business according to the laws under which it is chartered, and that it is not assuming functions or authority not granted to it. Further than this, the government examiner, whether state or national, usually counts the cash and examines the securities owned by the bank or held as col- lateral for loans; or, in the case of a trust company, held for the accounts in its trust department. They usually reconcile some of the more important accounts and make an examination that is, upon the whole, quite sufficient for the purposes of the government, which does not in any sense undertake to act as an insurance com- pany to protect stockholders and depositors from a loss of their investments. Government examiners have discovered many em- bezzlements, and, so far as the time at their command and the duties they are required to discharge will permit, they as a rule faithfully endeavor to protect the bank from loss wherever it may arise. It should, however, be recognized, as is frankly conceded by the best examiners themselves, that their work, though valuable, is entirely insufficient for the protection of the stockholders and the public. In recognition of the necessity for other examinations, most banks and trust companies provide for examinations to be made annually, or more often, by the members of their board, by a committee of stockholders outside of the board, or by professional accountants — sometimes by a combination of two of these plans. To be effective, the audit of a trust company must be made by some one reasonably familiar with the business of such a company, and with the methods usually found in suqh institutions. In addi- tion to this, a comprehensive knowledge of accounts is essential, for only such training can give an examiner a proper grasp of the prob- lems confronting him. The examiner should always keep in mind that the officers and employees of the institution he is examining are supposed to be honest, and should be treated accordingly; but at the same time he should never for a nioment lose sight of the fact that his work is to discover error or fraud if it exists, and to produce such a moral effect upon those engaged in the bank or trust company as will deter them from carelessness or wrong-doing. GENERAL ACCOUNTING 437 The man who contemplates stealing the funds of the bank in which he is employed, is desirous most of all of hiding his dishon- esty, and in this he has the advantage of the examiner, inasmuch as he is working upon inside lines and has plenty of opportunity to study the methods of the examiner and to contrive means of cir- cumventing him. It is not very difficult to discover the thief after he has wrecked the bank, but the ideal examination will reveal stealings in their incipient stage, and will make any successful manipulation of the bank's accounts so difficult and so certain of speedy detection that none but; a reckless criminal would undertake it. A good examination of a bank or trust company can be made by the board of directors, provided it is composed of men who have ample time at their command and who pessess sufficient technical knowledge and experience in accounting and banking methods, and who are willing to devote themselves to the work. An examination made by such men is not only good for the bank, but is also good for them as directors, in that it brings them into personal touch with the securities, records, and employees of the institution in a way not otherwise possible. The knowledge they acquire in the ordinary course of business as directors is helpful to them in making the ex- amination and enables them quickly to understand entries upon the books. An examination made by a board of directors may, on the other hand, by reason of lack of time or of technical skill, or both, be of little real value, causing trifling uneasiness to a dishonest employee and failing utterly to command the respect of the men responsible for the property and accounts under examination. Directors who count merely the cash and securities put before them, and compare them only with the accompanying statement with which in any event the items are bound to agree, and who do not also carefully verify the records of the company to prove that all the property and earnings are being fully and clearly accounted fpr, are indulging in a solemn farce and almost putting a premium upon carelessness and dishonesty. The strongest argument against examinations by directors is the fact that men of affairs may not be familiar with accounting methods or accustomed to handling cash or examining securities, and so may 438 THE MODERN TRUST COMPANY fail to recognize errors which would be readily detected by a trained accountant. Examinations made by stockholders outside of the board of directors are open to much the same objections as examinations made by directors, and are subject to the further criticism that the stockholder does not even possess the director's personal knowledge of the company's business. If, however, a committee of stock- holders can be secured, consisting of men who are familiar with banking practices, and who are accustomed to dealing with accounts, an examination thoroughly made by them may be very valuable. Directors of financial corporations are often busy men engrossed by interests other than those of the institutions which they are called on to direct. They are conscious that they lack the required skill, and that in any event the demands upon their time preclude the possibility of their making a thorough examination. At the same time, such men usually realize very keenly the responsibility resting upon them, and are most desirous that the funds of the corporation shall be carefully safeguarded. They also feel that an obligation rests upon them to remove so far as possible all temptations from the officers and employees engaged by them. It is their desire that their company shall conduct its business expeditiously and econom- ically, and at the same time keep an absolutely accurate record of its transactions. Such directors, .realizing their inability to deal with the situation in person, do what they are accustomed to do in their own business affairs when they find themselves similarly situated — they look for some one who can make the examination for them. It has consequently come to be a common practice for directors of large institutions to delegate the work of examinations wholly or in part to public accountants. As legislation is now providing a body of certified public ac- countants in the leading states, who after fulfilling rigid legal require- ments are duly admitted to the practice of their profession, and who are subject to severe penalties in the event of delinquency, it is com- paratively easy to distinguish between capable, responsible account- ants and those not so qualified. A certified public accountant in active practice is almost certain to have not only a good knowledge of banking and of the requirements of t;he courts in respect to GENERAL ACCOUNTING 439 accounts, but also a knowledge of general business that is most useful in examining a trust company, ile is accustomed to con- fidential relations, and his position in his profession and in the business community is directly contingent upon the faithful dis- charge of his obligations. Some banks and trust companies in this country have adopted the practice of printing a public accountgmt's certificate in their published reports. This is in keeping with a custom that is growing among other classes of corporations in this country, and that is almost universal in Great Britain. Present tendencies point to its becoming generally expected by the business public, just as banking houses are now laying stress upon ah accountant's certificate as to a customer's financial statement when presented as a basis for credit. In many respects the best examination of a trust company is one made semi-annually or quarterly by the board of directors and a certified public accountant, in which the directors and the accountant work together in counting the cash and securities, thus enabling the directors to see the actual assets, while the accountant and his assist- ants complete the examination by verifying the book entries and accounts. In addition to these semi-annual examinations, a certi- fied public accountant should be authorize J to make more frequent examinations of the accounts of one or more departments at a time, without previous notice to any one in the company. To discharge their duty to the stockholders whom they represent, to" the public whose confidence they solicit, and to the officers and employees of whom they require the utmost fidelity, the directors of every trust company must see that a simple but adequate system of accounts is used and insist upon frequent and thorough examina- tions of the assets and records. CHAPTER XXII MISCELLANEOUS SUBJECTS CORRESPONDENCE OR MAIL ROOM In a small company the care of correspondence presents no diffi- cult problems. With the increase of busipess, complications arise which may result in confusion, error, and needless expense unless systematic methods are introduced. The oversight of the mail is usually in the hands of the secretary, the details in a large office being cared f6r by a special force of assistants. To secure the greatest economy of time and space, a uniform system should obtain throughout the entire" office. While each de- partment should have its mail so handled as to meet its particular needs, the methods used should be in harmony with the general system of dealing with the correspondence of the entire establish- ment. Even in a small company it is well to inaugurate a simple system capable of expansion. When the size of the company is large enough to warrant it, there should be a special mail room, in which all mail is received and sorted and to which all out-going letters are sent to be mailed. Letters should not be allowed to accumulate either on the desks or in the mail room. Whether the typewriting should be done in the mail room is a question to be determined by the exigencieg of each case. With a limited force of stenographers more can be accomplished by having them together, under the direction of a chief operator who is held responsible for all the work. The other method, usually more satis- factory to the officers of a company, is to have stenographers attached to each department, who send their letters, after being signed, to the mail room. Such an arrangement saves the officers' time, as the stenographers are at hand wjien needed, and can be 440 MISCELLANEOUS SUBJECTS 44 1 made use of in many ways besides taking dictation. The stenog- rapher often occupies the post of private secretary, and is a very important part of the office force. To save time, the phonograph can be used for the purpose of dictation. The officer dictates to the machine as he finds oppor- tunity, and the operator sets the phonograph at a convenient speed and typewrites directly from it without taking down the dictation in shorthand. Other labor-saving devices should be introduced whenever they will facilitate the work. Duplicating systems are essential where many copies of letters or accounts must be made; and where the same lists of names are repeatedly used for mailing purposes, mechanical addressing systems should be used. An ample force of stenographers should always be employed in order to save the time of officers and clerks, which can be used to better advantage in other ways. With the introduction of loose-leaf books and book typewriters, it is becoming more general to have book entries and card index records made on the typewriter, because there is less liability to error than in written entries, and the results are neater and often more legible. All incoming mail is delivered to the secretary or his assistants. It is sorted and all specially addressed matter is sent to the proper departments without being opened. The addressing of the company's mail to individuals should however be discoiiraged, as important mail so addressed may, through the absence of an officer or employee, remain unanswered. The general mail should be opened, registered and distributed. Enclosures should be recorded in an incoming mail register in order to prevent loss and place responsibility. In some very large organizations each letter is followed up, and if an acknowledgment or answer is not returned for mailing within a reasonable time, the cause of delay is investigated. In most trust companies it is not necessary to have such elaborate systems as are needed in large mercantile establishments receiving and mailing hundreds or even thousands of letters each day. Outgoing letters originate in the various departments, and after being signed should be sent to the mail room. There are various methods of copying typewritten letters, none of which have ever 442 THE MODERN TRUST COMPANY proved as satisfactory as the carbon copy. If carbon copies instead of press copies are used the outgoing letter will look neat, while with the roller copier or copy press the original is often smeared. For filing purposes the carbon copy is always more satisfactory and the danger of a letter going out without an office copy being made is minimized. If there is a very large mail, it may be found advisable to have the outgoing mail arranged in alphabetical order in a sorting tray, so that all letters to one correspondent may be sent out in a single cover. This simple device will in a large office save a surprising number of stamps and envelopes. The fact that one stamp box is used for the entire office, instead of having a separate supply on each desk, also leads to economy. After the letters are inserted, the envelopes are put through a sealing machine, run either by hand or electricity. These machines automatically moisten the flap, and then pass the envelope through rollers under enough pressure to seal them securely. The enve- lopes are sealed as rapidly as they can be fed into the machine. Various filing systems are in use — all of them an evolution from the carefully folded and docketed package of a generation ago. For the business of a trust company the numerical vertical system is the most satisfactory, being the one most easily adapted to the demands of the various departments and their individual require- ments. The letters and copies of answers are filed in manila folders, lo" X 12", which are placed on edge, open side up, in file-drawers. Each folder bears a number, and guide cards separate them by twenties so that any folder is immediately located in the file-drawers, which also bear labels indicating the numbers of the folders they contain. Each new correspondent is given an accession number, and a card bearing that number is made out with his name and placed in the finding-index in alphabetical order, his correspondence being placed in the folder bearing the same number. A. card once placed in the finding-index is never destroyed. Cross index cards should be used whenever necessary. The advantages of the vertical system are too numerous to mention, but some of the most important features will commend MISCELLANEOUS SUBJECTS 443 themselves to the busy man. He finds in his mail a letter from some individual or company, whose previous correspondence he wishes to consult. The file clerk brings him the folio entire. As he opens it on his own desk the latest letter from or to his correspondent is on the top, and as he turns the letters, just as one would turn the pages of a book, he finds in chronological order all communica- tions in reference to the correspondent in question. As examples of what may be done with this system, a few very usual cases may be cited. John Doe is a depositor. He sends deposits by mail. On the receipt of his first letter he is given card and folder No. 377 (there being already three hundred and seventy-six master cards and folders in use for other correspondents), and his letter and the copy of its acknowledgment are filed in folder No. 377, his card taking its proper place in the finding-index. The X. and Y. R. R. Co. inquire as to Mr. Doe's standing. The trust company replies, and since their interest is in John Doe in this matter, the X. and Y. R. R. Co.'s letter and answer are filed in folder No. 377, a cross reference card being placed in the finding index and the signature of the X. and Y. R. R. Co. being ignored. He may also be a member of the firm of Doe and Roe, Bankers, who have a loan account with the trust company. They have previously been assigned, let us say, folder No. 206. In this folder may be found their correspondence, and a folder following it and called No. 206 A contains their signed slips showing changes in collateral. Should a question arise at any time in regard to their loans, the contents of this folder will materially assist in establishing the facts. Doe and Roe send the trust company a deposit with the request that it be credited to John Doe. They thereby become, as far as correspondence is concerned, merely middlemen, and as in the case of the X. and Y. R. R. Co., this request and the copy of the ac- knowledgment of deposit are filed and cross referenced to John Doe. Another case might differ a little, as follows. The trust com- pany is buying, through several brokers, various securities. The interest of the trust company is then, of course, centered in the secu- rity and not in any one of the firms who mpy chance to have taken 444 THE MODERN TRUST COMPANY its order. It may then be of advantage to have a set of folders bearing a number with an added letter. A card in the finding-index bears the name " securities " and the number 350. In the filing- drawer may be found folders No. 350 A, 350 B, 350 C, and so on ; or if 26 divisions are unnecessary the alphabet may be divided to suit the case, as few as three divisions beibg sometimes sufficient, as 350 A-F, 350 G-N, 350 O-Z. Thus, if Poe and Roe buy for the trust company certain securities of the Y. and Z. R. R. Co., they are evidently acting, again from a correspondence standpoint, as middle- men; and the Y. and Z. R. R. Co., being the security in which the trust company is interested, any correspondence in regard to it from Doe and Roe or others may be found under " Securities," folder 350, and in its proper alphabetical subdivision, and the Doe and Roe card is cross referenced to " Securities'" file-350 in its proper alpha- betical subdivision. Letters regarding syndicates in which the company participates will be most advantageously handled in like manner, and, in fact, filing by subject may be carried as far as is deemed expedient. Care should be taken, however, to file in this way only when the subject is more important than the name of the correspondent, and when all papers in regard to a given subject or of a similar character are more frequently wanted than the letters of each correspondent. Under one number sets of folders with alphabetical subdivisions may be given to such general heads as " Applications for Positions with the Company," " Applications for Mortgages, Declined," " Mis- cellaneous Inquiries," and so on. Under these and other heads a great deal of the flotsam and jetsam of correspondence, which more than likely will not again be consulted after the first handling, may be safely filed. The advantage, for instance, of having all applicants' letters concentrated would be appreciated if an extra clerk were needed at a moment's notice. Instead of looking through the old style alphabetical file for half-forgotten names, appended to letters of wholly forgotten dates, within half a minute the entire correspond- ence of applicants may be laid before the. officer desiring it, and he then may run through it in a few minutes more, and select the desired papers. These examples serve to illustrate some of the methods which MISCELLANEOUS SUBJECTS' 445 may be used in general correspondence. Different companies, how- ever, are sure to have dififerent needs, and variations of the cases noted above, as well as entirely new problems, will be easy of solution where numerical vertical filing is used, the object in view being aways so to file the correspondence that it may be easily located and consulted without unduly increasing the size of the find- ing-index or letter files. Trust letters may be filed separately, if deemed advisable, but the fewer divisions of the files the greater the efficiency of the sys- tem. Wherever there is a division there should be a division of the index, too, and the fewer places there are to look the quicker, natur- ally, can the folder be produced. With trust correspondence a great many cross reference cards will be necessary, as all the beneficiaries, etc., must be cross referenced to the master card. A subject can, of course, be classified into as many classes as the discretion of the person in charge may determine. In trust correspondence state- ments and accounts can be filed in colored folders to distinguish them from the correspondence. Deposit slips should be filed alphabetically in special cases and no index should be necessary. The real estate departments of some trust companies care for large numbers of properties, and improved properties must be kept tenanted and in repair. For many and obvious reasons the finding- index for this type of file must be territorial. The main divisions are by states, with subdivisions of county, town, street, and finally street numbers in numerical sequence. To find the entire corre- spondence relating to a given property, including letters from ten- ants, inquiries from prospective tenants, letters from carpenters and other mechanics, notices from city authorities, inquiries from the owners for whom the company is acting, and the copies of replies to all these, one folder is consulted. To locate the folder one has only to find the property on its card, which bears the folder num- ber, as in the general correspondence. In Jialf a minute the officer desiring it has laid before him all communications referring to the property in question. Tenants change, mechanics change, several part owners write, and so on, but the property always retains the folder number first given it. The mortgage correspondence may also be handled in the same 446 THE MODERN TRUST COMPANY way, since the only sure way of locating mortgage letters is by prop- erty. Both interest payer and mortgage owner may change, as in the case of a mortgage sold by one trust* account and bought by another, or the sale of a property subject to a mortgage, but the property number remains the same, and makes possible immediate consultation of all correspondence. Transferring is a very simple matter under the vertical system. As folders get unwieldly or the current files are filled, the corre- spondence is transferred into wooden boxes, I4i"x24^". These boxes should be kept in a transfer room and should be readily ac- cessible. A label on the outside of each box indicates the numbers of the folders which it contains, and the dates included in each are shown. At least a year's letters should be kept in the current files except when the correspondence is too voluminous or when the account is closed. The folder in the current file is stamped to show to what date the correspondence has been transferred. In a big company the practical way of transferring is to transfer all the letters of a given period. If the correspondence is not too vol- uminous the ideal way is to transfer a given number to the same transfer case to which previous correspondence of the number has been transferred, but as this takes considerably more time it is not advisable where the file is heavy. It does however save a great deal of time in locating transferred matter. „ The above gives a working plan for handling the correspond- ence of the average company. The success of any filing system depends in large measure upon the intelligence of those who are actually doing the work. When one remeinbers that quickness in ■filing a letter does not necessarily insure ease in finding it, the care and time taken in establishing and carrying out a suitable system are amply justified. CLERICAL FORCg The cost of labor turnover is better recognized in factories than in banking offices. In the selection of employees, mental tests, psychological and physical examinations, and all the questions asked by a life insurance or surety company befofe issuing a policy of in- MISCELLANEOUS SUBJECTS 447 surance, can be insisted upon with propriety, and are likely to facili- tate the decision as to employment or rejection. In large organizations an employment manager can do effective work, and by systematic methods greatly reduce the labor turnover and make the majority of rejections before, instead of after, employ- ment. The personnel of a trust company force must be of a high order of intelligence if it is to render satisfactory service. As in an army, a superior grade of private can be counted on to make good, even under indifferent officers, when a lower grade of rank and file cannot succeed under the most capable leadership. It is the recognition of these facts which has led large banking institutions to inaugurate schools of instruction, welfare work, social and other activities in order to attract and hold the best types of employees. Liberal bonus payments, pensions, group in- surance, profit-sharing and other forms of financial reward are also being increasingly used to supplement regular salaries and offer added inducements to a trust company career. There is no position in a trust company so humble as not to de- mand serious consideration of the character of the man who is to fill it. Where money values are so constantly dealt with, either directly or indirectly, honesty is always the first qualification. Edu- cation and previous occupations come next in importance. The gen- eral impression that no previous training is needed, that the bank or trust company is an asylum for poor relatives, high grade " morons " or luckless failures, is not shared by officers who have conducted an involuntary kindergarten and attempted to pound into shape the raw material thrust upon them by importunate direc- tors, stockholders, or clients. There is no room for " influence " in trust company appointments. Home surroundings are often the best index to personal char- acter, and a good name is not to be despised as a restraint from temptation and a spur to healthy ambition. The manners and gen- eral appearance of the office force have their bearing on the business. Handwriting — an almost neglected art outside the public schools — may settle the question of a clerk's promotion. On the whole, the man with college training, particularly if he is dependent on his 448 THE MODERN TRUST CQMPANY own exertions, is the best type for trust company positions. Tech- nical knowledge is easily supplied if earlier training has given the broad outlook and mental grasp which fit a man to rise to posts of responsibility. Banking has been one of the last fields to be entered by women. The stenographer was the entering wedge, and many other positions have since been captured. It is after all not so much a question of sex as of qualifications. There is no more room for the untrained woman in a trust company than there is for the untrained man. The great war and woman suffrage have opened the higher bank- ing, positions to trained and well qualified women, many of whom in banks and trust companies have already demonstrated their aptitude for successful executive leadership. The competition of clever and capable women will relegate the dull and self-satisfied type of male official to his proper place. The time is npt far distant when the holding by women of responsible positions as trust company officers will be taken as a matter of course. Employees are now almost universally required to furnish bonds for the faithful performance of their duties. These may be either personal bonds given by the employee and some relative or other individual who goes surety for him, or the obligation of a surety com- pany. The surety company's bond is rapidly superseding the per- sonal bond. The employer often pays the. premiums. The surety companies examine carefully the history and character of the em- ployee, and keep more or less closely in touch with their " risks," as occasion may require. The better companies pay losses promptly and use every effort to secure the conviction of wrong-doers, and this in itself acts as a powerful deterrent. They also take the responsibility of investigating the conduct of employees, and their cancellation of a risk or refusal to renew a bond is sufficient reason for dismissal. To get the best work from employees, strict and impartial disci- pline must be combined with liberal treatment and the prospect of deserved promotion. Salaries are based on the position and on the length of service. The trust company should protect itself not only by surrounding its employees with every safeguard, but by paying salaries on which they can live dedently. Every employee MISCELLANEOUS SUBJECTS 449 should be prohibited from stock or other speculation, and an infrac- tion of this rule should be adequate cause for dismissal. Promotions should be governed by civil service principles in a trust company as much as in a government department. The system should, how- ever, be elastic, and care should be taken not to promote unless the employee is well qualified for the higher post. ' " Anybody can do twelve months' work in eleven months ; nobody can do twelve months' work in twelve months." Mental work to be well done requires a definite amount of relaxation far greater than is required in the performance of mere physical labor. In the keen competition and busy life of this country it is seldom realized how necessary rest is for those who do exacting mental work, and par- ticularly for those who hold positions of responsibility. In trust companies regular attendance should be required when on duty, and liberal vacations should be given, both for the sake of the employee and as a protection to the company. The clerk who is never willing to be absent needs watching. A well-known firm requires each of its office employees to take a day off duty each month, when all per- sonal and private affairs must be attended to. One of the advantages of this plan is that, in substituting, the emplpyees have frequent op- portunity to examine and become familiar with each other's work. Vacations should be graded first as to the position held, and sec- ondly as to length of service. It goes withdut saying that the officer who is responsible for the conduct of the business needs more time off duty than the clerk who leaves all thought of work behind him when he closes his ledger. The best officers are not those who stick too closely to their desks. Civil pensions which in Europe are sot common are gradually being adopted by many business houses in this country. To keep up an effective organization and progressive methods, a trust com- pany, like an army, must provide some plan of compulsory retire- ment. The system should be based on the position held at the time of retirement, age, and length of service. The rules governing offi- cers and clerks should vary according to the requirements of each class. Compulsory retirement sometimes causes the loss of valuable employees, but these are few in proportion to the total number re- tired, and there is usually an actual saving in salaries. 4SO THE MODERN TRUST COMPANY MESSENGERS, WATCHMEN, AND CLEANERS The entrance of every trust company should be guarded by an adequate force of efficient watchmen, who can assist and direct customers, and exclude pedlers, book agents, and other undesirable visitors. A western trust company keeps tally of" all visitors by requiring the watchman at the doorway to hold in his hand an automatic count- ing device, which he presses each time any one enters the building. The total is reported to the president on the summary of each day's business. The record itself is not so valuable as the fact that it lessens the possibility of any one being able to slip in unnoticed. In addition to the force of watchmen stationed at the entrance of the building and in the various departments, there should be a -sufficient number of messengers. These may be either boys specially employed, or watchmen detailed for the purpose. All outside errands should be passed through the chief messenger, who can often ar- range that several errands shall be done on the same trip, saving both time and carfare. The night watchmen, who are left in entire charge of the building and its contents, should be intelligent and active, as well as thoroughly trustworthy. It is a mistake to suppose that this is a position to be filled by the superannuated. The watchmen inspect the building at frequent and regular intervals. Except in case of emergency, they should never admit any one to the building unless authorized to do so by the proper officer. Outside electric connections are now used as a valuable additional protection. The cleaners are sometimes a separate -force; often the watch- men and messengers do this work. Whatever the arrangement, the cleaning should be regularly done under strict supervision. The best results are obtained by having a housekeeper or superintendent of the building, who is responsible for its cgndition, and who over- sees the work of scrubbing and cleaning. The standard of cleanli- ness in offices is unfortunately not high, and in many that abomina- tion, the feather duster, still holds sway. A lesson in the art of conquering dirt should be learned from the hospitals. MISCELLANEOUS SUBJECTS 451 OFFICE BUILDIl^G Trust companies are permitted by law to hold sufficient real estate to provide for the conduct of their business. The limit of such holdings is usually fixed by charter or statutory provision. Some trust companies occupy rented quarters, but location is so important a factor in securing and holding business that for the sake of permanent tenure they usually own their office buildings. Where the price of land permits, the company generally prefers to occupy an entire building. The construction should be of the best, and the first cost will be more than offset by the later saving in repairs. The building should be fireproof throughout, the walls heavy enough to protect the in- terior in case of fire in adjoining buildings. If surrounded by high buildings, the roof should also be strong enough to bear the weight of walls which may fall upon it. Steel cases and shelving are superior to wood. The main banking room occupies the ground floor. There is usually a lobby just inside the entrance and a central aisle with the offices on each side. The banking department is generally near the entrance, while the trust and other departments are in the rear or on different floors. The higher officers should be protected from the importunities of the peddler and book agent, and yet they should be within reach of all who wish to consult them. The plans for a new building should provide a systematic arrange- ment of departments, and allow space for future growth. In each department there should be a comfortable room for the officer in charge, and ample provision for the convenience of customers. In the trust department, especially, where the visits of clients are neces- sarily often long, there should be pleasant waiting rooms, and rooms where securities may be received and counted, of conferences held, with due regard for privacy. Many companies are now providing separate quarters for women customers, f urfiished with every luxury, and with a maid in attendance. Adequate lavatories for the use of both the office force and the public are essential. Where both men and women are employed, separate dressing and wash rooms 452 THE MODERN TRUST COMPANY must be provided. Each employee should have a locker for his personal use. Clerks should not be permitted to leave hats or cloth- ing where they can be seen by the customers. Storerooms for old books, records, and correspondence should be so arranged that all documents can be readily found and consulted when necessary. If meals are served to the employees, the dining rooms, pantry, and kitchen should be at the top of the building if possible, — never in the basement, — and so ventilated that the smell of cooking cannot penetrate elsewhere. The officer in charge of the building should make a careful study of its ventilation. Fresh air is essential to the health and efficiency of the employees, and the comfort of customers. The basement should extend under the entire building, and where space is precious, it can be used for safe deposit vaults as well as for Hghting and heating plants, lavatories, and' stock rooms. The vaults are built on foundations entirely separate from the rest of the building. The heavy main doors are equipped with time and combination locks. Inside these are grill doors for use during office hours, and locked steel closets. Electric attachments are often used, which record at a point outside the building the time when the vault doors are opened and closed. After office hours all persons entering or leaving the building should do so through a single door, and the Watchman on duty should keep a tally sheet of their names. An automatic attachment rings a bell and records the time while the door is open. The two records should be compared each morning. A time detector should be punched at regular intervals by the watchmen who make frequent rounds of the building. The right to enter the building when closed should be limited to as small a number as possible. On the books of a new organization, its building and fixtures appear at cost figures. These should gradually be reduced to allow for possible depreciation in the value of the land and for the wear and tear of building and fixtures. In almost every mercantile or manufacturing business, a fixed amount is annually written off for the depreciation of the plant, and the same principle should be fol- lowed by financial institutions, although many of them let real estate and buildings stand at cost on the books, and are content to take the half-way measure of charging repairs and renewals to expenses. MISCELLANEOUS SUBJECTS 453 Even if the value of the land increases, it is sound policy to cut down the book value so as to be prepared for the possible removal, exten- sion or alteration of the office building. LUNCHEON ROOM Where the size of the company and the profits of the business warrant the expense, it is advisable to give the employees a luncheon in the building. The only argument against providing meals is their cost, and this may be defrayed by charging for them, and still giving a cheaper and better luncheon than could be obtained elsewhere. The substitution of a comfortable meal for a " quick lunch " of dubious quality has its effect on the health and regular attendance of the office force. It also insures the clerks being in the building if needed, obviates the danger of their frequenting undesirable resorts, and reduces the length of time they are absent from their desks. Sometimes a caterer brings the meal already prepared to the office. It is more satisfactory for the company to have its own kitchen, storeroom, and pantry, and to employ a housekeeper. The housekeeper should prepare the weekly menus and submit them for approval to a superior officer. There may be somewhat different bills of fare for the messengers and watchmen, the general force of clerks, and the officers. Usually there is a special dining room for the president and directors. In some companies luncheon is served separately to the women employees. By having two tables at which meals are served alternately each half hour, the office force can be provided for without taking many from their desks at the same time. One capable cook and a helper can provide luncheon for about one hundred persons, and two waiters can serve the meals to the same number in relays of twelve to eighteen. Where a series of luncheons is served, a hotel gas range should be used. The cost is usually about the same as for coal, and a quick and even fire is secured with entirfe freedom from ashes. There should be large serving and steam tables. It is also well to provide ample refrigerators and storerooms so that meats and pro- visions can be bought in quantity. If a housekeeper is employed, she should be responsible for the 454 THE MODERN TRUST COMPANY cleanliness of the entire building, and the scrubbers and cleaners should be under her direction. A competent housekeeper who is a trained dietitian with a good knowledge of household economics can make the position an important one. A housekeeping depart- ment makes it possible to provide luncheon^ for stockholders' meet- ings and other special occasions at comparatively slight cost. PURCHASE AND CARE OE SUPPLIES To avoid duplication and waste, all purchases should be made under the direction of a single officer especially qualified for this duty. Each department makes requisition on the purchasing officer for needed supplies. The buyer should, if possible, not be the dis- bursing officer. An absolute rule should be made against the pur- chasing officer's accepting commissions and gifts, no matter how trifling, or rebates of any sort. There cannot be fair competition unless the bidder realizes that price and quality are the only factors to be considered. Carelessness on the part of buyers has probably fostered the pre- vailing opinion that the large profits of financial institutions make them fair game for the merchant as well as the tax gatherer. As a matter of fact, a trust company should be able to buy on more favor- able terms than the ordinary customer, because of the certainty of prompt payment and the likelihood of continuous custom. Good policy requires that the purchases of a trust company should be in keeping with its reputation for solidity and success; its stationery should be attractive for the same reasons that its building should be kept in good repair. The most expensive supplies are not always the most serviceable, however, and the expert purchasing officer can effect large savings by knowing where and how to buy to the best advantage. Thus, certain firms, whose prices are low for one kind of work, may invariably be high for others. The stationer who out- bids his competitors on general printing may not be able to compete on the item of envelopes with the envelope manufacturers who both make and print the goods. Wherever possible, purchases should be made in quantity and after securing competitive bids. Careful specifications should always MISCELLANEOUS SUBJECTS 455 be prepared, both to protect the purchaser and to make it certain that the bidders are all estimating on the same thing. Bids should be asked only from reputable and responsible firms. When long experience has proved that a particular firm always presents the lowest bid in its line, and that the prices vary but slightly from year to year, it may not be necessary to get more than their single estimate unless there should be a sudden advance in price. All stationery and books in regular use should be ordered annually. When expensive forms are used in small quantities, considerable saving can be effected by ordering for longer periods. If the order for the entire year's printing is given in the late spring or early summer, when the printers' business is dull, and full time is allowed for delivery, a concession in price can usually be obtained. Special and rush orders are always costly. Before the annual orders for stationery and supplies are given, the stock clerk should show on an inventory sheet the stock on hand, the amounts used during the previous year, and the date, quantity, and prices of the last order. Using these figures as a basis, estimates are asked for the amounts needed for the coming year. In a trust company the cost of supplies is charged off as an accrued expense as soon as the bill is approved as correct. Hence the in- ventory of supplies on hand does not, as in a mercantile or manu- facturing business, form an essential part of the balance sheet. Careful records should nevertheless be kept in order to prevent waste. In a recently organized trust company in a small country town, the bank examiner found on his first visit an item of " personal prop- erty" in the general balance sheet. Upon inquiry this item was found to represent the stock of pens, pencils, and stationery on hand, and the examiner's suggestion that the item be charged off as an expense, brought to light the fact that the earnings were not sufficient to cover their cost, and that charging them off would result in an impairment of the company's capital! All goods should be delivered to the stockkeeper, who examines them and notes their receipt in a record of supplies received. He should compare the goods delivered with the quantities ordered, and initial the bills if found correct. He is responsible for the care gf all supplies arid should be given ample space to arrange them -="^ ^ T 1 °i X 1 1! |J ill H 1 g 11 " H 1 ^ u il 4S6 MISCELLANEOUS SUBJECTS 457 systematically and neatly. The supplies bjelonging to each depart- ment should be kept together and when possible arranged according to the number of the form. They may be kept on open shelves of varying size, in cheap pasteboard boxes, the smaller boxes one-half, one-quarter, and one-eighth the size of thd larger ones, so that the different sizes can be stacked together without wasting space. In ordering large quantities of stationery, envelopes, etc., it is well to specify that the goods shall be delivered either in boxes or else wrapped in sealed packages and clearly marked with the form num- ber and amount. No stock should be distributed to the various departments except upon requisition, properly signed. A stock record should be kept, and for this purpose cards are more convenient than a book. The cards, ruled to show the name of the article, the fixed maximum and minimum quantities, the receipts, deliveries and balance on hand, can be secured from any well equipped stationer. Postings are made at regular intervals from the record of stock received and the requisi- tions. By keeping track of the balance on hand, it is easy to know just when to order fresh supplies. As the stock record shows the quantities used from yeaf to year, it is also a simple matter to esti- mate the quantity needed for any given period. Without such a record it would be all but impossible to order supplies systematically. The stock record can, if desired, be combined with the index of forms described below. The stockkeeper should take stock at stated periods, in order to verify his records. Contracts should be made covering the cost of small and recur- ring items, such as printing depositors' names on standard checks, and numbering and binding checks.^ Standard qualities of paper and a uniform style of printing should be= adhered to. All forms should be numbered and bear the amount and date of the order. Thus, " T. 21. 5000 7.20 " would designate trust department form, No. 21, for which the order was given in July, 1920, for 5000 copies. Orders should invariably be given on a printed order form, and a carbon copy or stub should be retained. Copies of the forma used in each department should be kept in a sample book, arranged ac- cording to form numbers. This should be supplemented by a card 1 See p. 144. 458 THE MODERN TRUST COMPANY index of forms arranged in the same way and giving the date, quan- tity, and price paid. The quantities purchased during a period of years and their cost are thus recorded, and" fluctuations in price are easily traced. Following the cards representing numbered forms there should be an alphabetical index of other equipment in regular use. ADVERTISING The well-pleased client is undoubtedly the best advertisement; but in these days of severe competition it does not do to depend alone on the good-will of friends to spread a knowledge of one's business. The better the commodity or service one has to offer, the more im- portant to have it brought to the notice of the people who need it. Advertising has become an art, and the form of the advertise- ment must be carefully adapted to the nature of the business, and the temper of the public appealed to. The merchant may be justified in crying his wares in a fashion entirely inappropriate for the trust company, which misses the whole object of drawing attention to itself unless it can inspire confidence at the same time. The old and conservative community, especially, must not have its ideas of decorum too rudely shaken. Most trust companies advertise regularly in daily newspapers, and occasionally in magazines. They also distribute statements of condition, leaflets, pamphlets, and even larger books, giving a history of the company or explaining its purposes. There is, besides, a mass of more or less delusive advertisings — delusive, that is, from the point of view of the advertiser. Blotters, calendars, rulers, and the thousand and one gift books and novelties which trust companies are continually urged to use as advertising matter may occasionally bring in business, but the return is seldom in- proportion to the outlay. Mr. John E. Powers, the author of much successful advertising, says : " The limit to what can be done in newspapers is one little item a day, one simplest possible thought. Divide the whole knowl- edge into its smallest parts, and present onej)art a day. The atten- tion of people to such things is no more tha,n enough, if indeed it be enough, for one little thought a day: and the smaller the thought, the more likely it is to grow in the reader's mind." MISCELLANEOUS SUBJECTS 459 Money given at the request of powerful friends to a charity, a city bureau, or a local military organization should be charged to profit and loss rather than to advertising. Especially to be avoided are so-called directories and gift books published simply to secure advertisements, and the alluring volumes in which a history of the company or biographical sketches of its officers are to be inserted without charge. The large supply of " marked copies " which has to be bought later, or the bill for etching a second-rate portrait, sets a price on this concession to corporate or individual vanity. The banker is proverbially " easy " in these matters. He has not been forced to give the same close attention to advertising as the merchant, and he seldom has an expert advertising manager. The need of system is, however, gradually being recognized. A trust company's advertising should all be in charge of one person, and the sum to be expended for the year, as well as the general plan of campaign, should be settled and contracts made in advance. If there is no one in the office force fitted to map out the work successfully, an advertising agency of high grade may be employed to take charge of all the advertising, or to act in an advisory capacity. In the selection of an expert great care should be taken, for the man who can successfully advertise a soap or a piano, may not understand the difference between a grocery store and a trust company. On the other hand, a plan should not be condemned simply on the ground of novelty, and the agent once chosen should so far as possible be given an opportunity to carry out his ideas. APPENDIX CODE OF LAWS OF THE DISTRICT OF COLUMBIA SUBCHAPTER XI Trust, Loan, Mortgage and Certain Other Corporations Sec. 715. For What Purposes to be Formed. — Corporations may be formed within the District of Columbia for the purposes hereinafter mentioned in the following manner : At any time hereafter any number of natural persons, citizens of the United States, not less than twenty- five, may associate themselves together to form a company for the pur- pose of carrying on in the District of Columbia any one of the three classes of business herein specified, to wit : — First. A safe deposit, trust, loan, and mortgage business. Second. A title insurance, loan, and mortgage businessi. Third. A security, guaranty, indemnity, loan, and mortgage busi- ness: Provided, That the capital stock of any of said companies shall not be less than one million of dollars and that any of said companies may also do a storage business when their capital stock amounts to the sum of not less than one million two hundred thousand dollara Sec. 716. Organization Certificate — Such persons shall, under their hands and seals, execute, before some officer in said district competent to take the acknowledgment of deeds, an organization certificate, which shall specifically state — First. The name of the corporation. Second. The purposes for which it is formed. Third. The term for which it is to exist, which shall not exceed the term of fifty years, and be subject to alteration, amendment or repeal by Congress at any time. Fourth. The number of its directors, and the names and residences of the officers who for the first year are to manage the affairs of the com- pany. Fifth. The amount of the capital stock and its subdivision into shares. Sec. 717. Power of Commissioners of the District. — That this 461 462 APPENDIX certificate shall be presented to the Commissipners of the District, who shall have power and discretion to grant or refuse to said persons a charter of incorporation upon the terras set forth in the said certificate and the provisions of this subchapter. Sec. 718. Notice of Application to Commissioners,— Previous to the presentation of the said certificate to the said commissioners, notice of the intention to apply for such charter shall be inserted in two news- papers of general circulation, printed in the District of Columbia, at least four times a week for three weeks, setting forth briefly the name of the proposed company, its character and object, the names of the pro- posed corporators, and the intention to make application for a charter on a specified day, and the proof of such publication shall be presented with said certificate when presentation thereof is made to said Commis- sionersi. Sec. 719. Recording Charter, etc. — If the cttarter be granted as afore- said, it, together with the certificate of the Commissioners granting the same indorsed thereon, shall be filed for record in the office of the re- corder of deeds for the District of Columbia, and shall be recorded by him. On the filing of the said certificate with the said recorder of deeds as herein provided, approved as aforesaid by the said Commissioners, the persons named therein and their successors; shall thereupon and thereby be and become a body corporate and politic, and as such shall be vested with all the powers and charged with all the liabilities conferred upon and imposed by this subchapter upon cbmpanies organized under the provisions hereof: ProvideDj However, That no corporation created and organized under the provisions hereof, or availing itself of the pro- visions hereof as contained in section seven hundred and twenty-five, shall be authorized to transact the business of a trust company, or any business of a fiduciary character, until it shall have filed with the Comptroller of the Currency a copy of its certificate of organization and charter, and shall have obtained from him" and filed the same for record with the said recorder of deeds, a certificate that the said capital stock of said company has been paid in and the deposit of securities made with said Comptroller in the manner and to the extent required by this subchapter. Sec. 720. Reports to ComptroUer.— All companies organized here- under, or which shall, under the provisions hereof, become entitled to transact the business of a trust company, shall report to the Comp- troller of the Currency in the manner prescribed by sections fifty-two hundred and eleven, fifty-two hundred and twelve, and fifty-two^hundred APPENDIX 463 and thirteen of the Revised Statutes of the United States, in the case of national banks, and all acts amendatory thereof or supplementary thereto, and with similar provisions for compensating examiners, and shall be subject to like penalties for failure to do so. The Comptroller shall have and exercise the same visitorial powder 6ver the affairs of the said corporation as is conferred upon him by section fifty-two hundred and forty of the Revised Statutes of the United States in the case of national banks. He shall also have power, when in his opinion it is necessary, to take possession of any such company for the reasons and in the manner and to the same extent as are provided in the laws of the United States with respect to national banks. Sec. 721. Special Powers. — All companies organized under this sub- chapter are hereby declared to be corporations possessed of the powers and functions of corporations generally, and shall have power — First. To make contracts. Second. To sue and be su'ed, implead and be impleaded, in any court as fully as natural persons. Third. To make and use a common seal and alter the same at pleasure. Fourth. To loan money. Fifth. When organized under subdivision: one of section seven hun- dred and fifteen of this subchapter, to accept and execute trusts of any and every description which may be committed or transferred to them, and to accept the office and perform the duties "of a receiver, assignee, executor, administrator, collector of estate or property of any decedent, guardian of the estate of minors, with the consent of the guardian of the person of such minor, and committee of the estates of lunatics and idiots, whenever any trusteeship or any such office or appointment is committed or transferred to them, with their consent, by any person, body politic or corporate, or by any court in the District of Columbia; and all such companies organized under the first subdivision of section seven hundred and fifteen of this subchapter are further authorized to accept deposits of money for the purposes designated herein, upon such terms as may be agreed upon from time to time with depositors, and to act as agent for the purpose of issuing or countersigning the bonds or obliga- tions of any corporation, association, municipality, or state, or other public authority, and to receive and manage any sinking fund on any such terms as may be agreed upon, and shall have power to issue its debenture bonds upon deeds of trust or mortgages of real estate to a sum not exceeding the face value of said deeds of trust or mortgages, 464 APPENDIX and which shall not exceed fifty per centum of the fair cash value of the real estate covered by said deeds or mortgages, to be ascertained by the Comptroller of the Currency ; but no debenture bonds shall be issued until the securities on which the same are based have been placed in the actual possession of the trustee named in the debenture bonds, who shall hold said securities until all of said bonds are paid; and when organized under the second subdivision of section seven hundred and fifteen of this subchapter said company is authorized to insure titles to real estate and to transact generally the business mentioned in said subdivision; and when organized under the third subdivision of section seven hundred and fifteen of this subchapter said company is hereby authorized, in addition to the loan and mortgage business therein men- tioned to secure, guaranty, and insure individuals, bodies politic, associa- tions, and corporations against loss by or through trustees, agents, serv- ants, or employees and to guaranty the faithful performance of contracts and of obligations of whatever kind entered into by or on the part of any person or persons, association, corporation or corporations, and against loss of every kind: Provided, That any corporation formed under the provisions of this subchapter when acting as trustee shall be liable to account for the amounts actually earned by the moneys held by it in trust in addition to the principal so held; but such corporation may be allowed a reasonable compensation for services performed in the care of the trust estate. Sec. 722. May be appointed Trustee, Executor, etc. — In all cases in which application shall be made to any court iA the District of Columbia, or wherever it becomes necessary or proper fcSr said court to appoint a trustee, receiver, administrator, collector, guardian of the estate of a minor, or committee of the estate of a lunatic, it shall and may be lawful for said court (but without prejudice to any preference in the order of any such appointments required by existing law) to appoint any such company organized under the first subdivision of section seven hundred and fifteen of this subchapter with its assent, such trustee, receiver, administrator, committee, or guardian, with the consent of the guardian of the person of such minor: Provided, However, That no court or judge who is an owner of or in any mknner financially interested in the stock or business of such corporation shall commit by order or decree to any such corporation any trust or fiduciary duty. Sec. 723. Oarth. — Whenever any corporation operating under this code shall be appointed such trustee, executor, administrator, collector, receiver, assignee, guardian, or committee as aforesaid, the president, APPENDIX 465 vice-president, secretary, or treasurer of said company shall take the oath or affirmation now required by law to be made by any trustee, executor, administrator, collector, receiver, assignee, guardian, or committee. Sec. 724. Stock to be Security.— When aiiy court shall appoint the said company a trustee, receiver, administrator, collector, or such guardian or committee, or shall order the deposit of money or other valuables with said company, or where any individual or corporation shall appoint any of said companies a trustee, executor, assignee, or such guardian, the capital stock of said company subscribed for or taken, and all property owned by said company, together with the liability of the stockholders and officers as herein provided, shall be taken and con- sidered as the security required by law for the faithful performance of its duties, and shall be absolutely liable in. case of any default what- ever. Sec. 725. Existing Companies.— Any safe deposit company, trust company, surety or guaranty company, or title-insurance company now incorporated and operating under the laws of the United States or of the District of Columbia, or of any of the States, and now doing business in said District, may avail itself of the provisions of this subchapter on filing in the office of the recorder of deeds of the District of Columbia, or with the Comptroller of the Currency, a certificate of its intention to do so, which certificate shall specify which one of the three classes of business set out in section seven hundred and fifteen it will carry on, and shall be verified by the oath of its president to the effect that it has in every respect complied with the requirements of existing law, espe- cially with the provisions of this subchapter ; that its capital stock is paid in as provided in section seven hundred and thirty-five of this subchapter and is not impaired, and thereafter such company may exercise all powers and perform all duties authorized by any one of the subdivisions of section seven hundred and fifteen of this subchapter in addition to the powers now lawfully exercised by such company. Sec, 726. Real Estate. — Any company operating under this sub- chapter may lease, purchase, hold and convey real estate, not exceeding in value five hundred thousand dollars, and such in addition as it may acquire in satisfaction of debts due to the corporation, under sales, decrees, judgments, and mortgages. But no §uch association shall hold the possession of any real estate under foreclosure of mortgage, or the title and possession of any real estate purchased to secure any debts due to it, for a longer period than five years. Sec. 727. Duration of Charter — The charters for incorporations 466 APPENDIX named in this subchapter may be made perpetual, or may be limited in time by their provisions, subject to the approval of Congress. Sec. 728. Capital Stock.— The capital stock of every such company shall be at least one million dollars, and at least fifty per centum thereof must have been paid in, in cash or by the transfer of assets as hereinafter provided in section seven hundred and thirty-five of this subchapter, be- fore any such company shall be entitled to transact business as a corpora- tion, except with its own members; and before any company organized hereunder shall be entitled to transact the business of a trust company, or to become and act as an administrator, executor, guardian of the estate of a minor, or undertake any other kindred fiduciary duty, it shall deposit, either in money or in bonds, mortgages, deeds of trust, or other securities, equal in actual value to one- fourth of the capital stock paid in, with the Comptroller of the Currency, to be kept by him upon the trust and for the purposes hereinafter provided; and the said Comp- troller may from time to time require an additional deposit from any such company, to be held upon and for the same trust and purposes, not exceeding, however, in value one-half the paid-in capital stock ; and the said Comptroller shall not issue to any corporation the certificate hereto- fore provided for until said deposit with him of securities required by this section. Within one year after the organization of any corporation under the provisions of this subchapter, or after any corporation hereto- fore existing shall have availed itself of the^ powers and rights given by this subchapter in the manner herein provided for, its entire capital stock shall have been paid in. Sec. 729. Shares. — The capital stock of every such company shall be divided into shares of one hundred dollars each. It shall be lawful for such company to call for and demand from stockholders, respectively, all sums of money by them subscribed, at such time and in such proportions as its board of directors shall deem proper, within the time specified in section seven hundred and twenty-eight, and it may enforce payment by all remedies provided by law; and if any stockholder shall refuse or neglect to pay any instalment as required by a resolution of the board of directors, after thirty days' notice of the same, the said board of directors may sell at public auction, to the highest bidder, so many shares of said stock as shall pay said instalment, under such general regulations as may be adopted in the by-laws of said company, and the highest bidder shall be taken to be the person who offers to purchase the least number of shares for the assessment due. Sec. 730. Annual Reports to Comptroller, — Every such company APPENDIX 467 shall annually, within twenty days after the first of January of each year, make a report to the Comptroller of the Currency, which shall be published in a newspaper in the District, which shall state the amount of capital and of the proportion actually paid, the amount of debts, and the gross earnings for the year ending December thirty-first then next previous, together with their expenses, which report shall be signed by the president and a majority of th^ directors or trustees, and shall be verified by the oath of the presideftt, secretary, and at least three of the directors or trustees ; and said company shall pay to the Dis- trict of Columbia, in lieu of personal taxes for each next ensuing year, one and a half per centum of its gross earnings for the preceding year, shown by said verified statement, which amount shall be payable to the collector of taxes at the times and in the manner that other taxes are payable. Sec. 731. Liability of Trustees. — If any company fails to comply with the provisions of the preceding section, all the directors or trustees of such company shall be jointly and severally liable for the debts of the company then existing, and for all that shall be contracted before such report shall be made: Provided, That in case of failure of the company in any year to comply with the provisions of section seven hundred and thirty of this subchapter, and any of the directors shall, on or before January fifteenth of such year, file his written request for such com- pliance with the secretary of the company, the Comptroller of the Cur- rency, and the Recorder of Deeds of the District of Columbia, such director shall be exempt from the liability prescribed in this section. Sec. 732. False Swearing. — Any wilful false swearing in regard to any certificate or report or public notice required by the provisions of this act shall be perjury, and shall be punished as such according to the laws of the District of Columbia. Any misappropriation of any of the money of any corporation or company formed under this act, or of any money, funds, or property intrusted to it, shall be held to be larceny, and shall be punished as such under the laws of said District. Sec. 733. Stock, Personal Estate. — The stock of such company shall be deemed personal estate, and shall be transferable only on the books of such company in such manner as shall be prescribed by the by-laws of the company; but no shares shall be transferable until all previous calls thereon shall have been fully paid, and the said stock shall not be taxable in the hands of individual owners, the tax on the gross earnings of the company hereinbefore provided being in lieu of other personal tax. All certificates of the stock of any company organized under this 468 APPENDIX subchapter shall show upon their face the par value of each share and the amount paid thereon. Sec. 734. Liability of Stockholders All stockholders of every com- pany incorporated under this subchapter, or availing itself of its pro- visions under section seven hundred and twe«ty-five, shall be severally and individually liable to the creditors of such company to an amount equal to and in addition to the amount of stock held by them, respectively, for all debts and contracts made by such corfipany. Sec. 735. Stock to be paid up in Money only — Nothing but money shall be considered as payment of any part of the capital stock, except that in the case of any company now doing business in the District of Columbia in any of the classes herein provided for, or under any act of Congress or by virtue of the laws of any of the States, and which company has actually received full payment In money of at least fifty per centum of the capital stock required by this act and which company desires to obtain a charter under this act, all the assets or property may be received and considered as money, at a value to be appraised and fixed by the Comptroller of the Currency: Provided, That all such assets and property are also transferred to and are thereafter owned by the company organized under this act. Sec. 736. Number of Trustees. — The stock, property, and concerns of such company shall be managed by not less than nine nor more than thirty directors, or trustees, who shall, respectively, be stockholders and at least one-half residents and citizens of the District of Columbia, and shall, except the first year, be annually elected by the stockholders at such time and place and after such published notice" as shall be determined by the by-laws of the company, and said directors or trustees shall hold until their successors are elected and qualified. Sec. 737. Officers. — There shall be a president of the company, who shall be a director, also a secretary and a treasurer, all of whom shall be chosen by the directors or trustees : Provided, That only one of the above- named offices shall be held by the same person at the same time. Subor- dinate officers may be appointed by the directofs or trustees, and all such officers may be required to give such security for the faithful perform- ance of the duties of their office as the directors or trustees may require. Sec. 738. By-Laws. — The directors or trustees shall have power to make such by-laws as they deem proper for the management or disposal of the stock and business affairs of such company, not inconsistent with the provisions of this subchapter, and prescribing the duties of officers and servants that may be employed, for the appointment of all officers. APPENDIX 469 and for carrying on all kinds of business within the objects and purposes of such company. Sec. 739. Dividends — If the directors or trustees of any company shall declare or pay any dividend the payment of which would render it insolvent, or which would create a debt against, such company, they shall be jointly and severally liable as guarantors for all of the debts of the company then existing, and for all that shalL be thereafter contracted, while they shall, respectively, remain in office. Sec 740. If any of the directors or trustees shall object to declaring such dividend or the payment of the same, and shall at any time before the time fixed for the payment thereof file a certificate of their objection in writing with the secretary of the company '^nd with the recorder of deeds of the District they shall be exempt frorfi liability prescribed in the preceding section. Sec. 741. Liabilities exceeding Assets If the liabilities of any company shall at any time exceed the amount of the fair cash value of the assets, the directors or trustees of such company assenting thereto shall be personally and individually liable for such excess to the credit- ors of the company after the additional liability of the stockholders has been enforced. Sec. 742. Executors, etc., holding Stock — No person holding stock in such company as executor, administrator, guardian, or trustee shall be personally subject to any liability as stockholder of such company, but the estate and funds in the hands of such executor, administrator, guardian, or trustee, shall be liable in like manner and to the same extent as the testator or intestate or the ward or the person interested in such trust fund would have been if he had been living and competent to act and hold the stock in his own name. Sec. 743. Increase of Capital Stock.— Any corporation which may be formed under this subchapter may increase its capital stock by com- plying with the provisions of this subchapter to any amount which may be deemed sufficient and proper for the purposes of the corporation. Sec. 744. Copy of Certificate to be Evidence — A copy of any cer- tificate of incorporation filed in pursuance of this subchapter, certified by the recorder of deeds to be a true copy and the whole of such certificate, shall be received in all courts and places as presumptive legal evidence of the facts therein stated. Sec. 745. No Bond to be required when Company appointed Executor, etc., except, etc. — No bond or other collateral security, except as herein- after stated, shall be required from any tru^t company incorporated 470 APPENDIX under this subchapter for and in respect to any trust, nor when ap- pointed trustee, guardian, receiver, executor, or administrator, with or without the will annexed, collector, committee of the estate of a lunatic or idiot, or other fiduciary appointment ; but the capital stock subscribed for or taken, and all property owned by said company and the amount for which said stockholders shall be liable in excess of their stock, shall be taken and considered as the security required by law for the faithful performance of its duties and shall be absolutely liable in case of any default whatever; and in case of the insolvency or dissolution of said company the debts due from the said company as trustee, guardian, receiver, executor, administrator, collector, or committee of the estate of lunatics, idiots, or any other fiduciary appointment shall have a preference. Sec. 746. Bond may be Required. — The supreme court of the District of Columbia, or any justice thereof, shall have power to make orders respecting such company whenever it shall have been appointed trustee, guardian, receiver, executor, administrator, with or without the will annexed, collector, committee of the estate of a lunatic, idiot, or any other fiduciary, and require the said company to render all accounts which might lawfully be made or required by any court or any justice thereof if such trustee, guardian, receiver, executor, administrator with or with- out the will annexed, collector, committee of the estate of a lunatic or idiot, or fiduciary were a natural person. And said court or any justice thereof, at any time, on application of any person interested, may ap- point some suitable person to examine into the aflfairs and standing of such companies, who shall make a full report thereof to the court, and said court, or any justice thereof, may at any time, in its discretion, require of said company a bond with sureties or other securities for the faithful performance of its obligations, and such sureties or other security shall be liable to the same extent and in the same manner as if given or pledged by a natural person. Sec, 747, Corporations organized under State Laws No corpora- tion or company organized by virtue of the laws of any of the States of this Union and having its principal place of business within the District of Columbia shall carry on in the District of Columbia any of the kinds of business named in this subchapter withotlt strict compliance in all particulars with the provisions of this subchap'ter for the government of such corporations formed under it, and each 6ne of the officers of the corporation or company so ofifending shall be punished by fine not exceed- APPENDIX 471 ing one thousand dollars, or imprisonment not^ exceeding one year, or by both fine and imprisonment, in the discretion of the court. Sec. 748. Right to Amend or Repeal reserved to Congress Congress may at any time alter, amend, or repeal this subchapter, but any such amendment or repeal shall not, nor shall the dissolution of any company formed under this subchapter, take away or impair any remedy given against such corporation, its stockholders or officers, for any liability or penalty vifhich shall have been previously incurred. SCHEDULE OF CHARGES ADOPTEb BY THE TRUST COMPANY SECTION OF THE CALIFORNIA BANKERS' ASSOCIATION schedule one Subject: Holding Title to Real Estate, with the Duties and Responsibilities of Management Acceptance Fee: i/io of i% of the market value of trust property. Minimum: If any material part of the trust property be improved, $25; if trust property be unimproved, $15. The acceptance charge may be made on a basis of $5.00 for each certificate of beneficial interest, the entire charge, however, to be not less than i/io of 1% of the market value of the trust property, with minimum as above. Annual Fee: yi oi 1% oi the market value of trust property. Min- imum : If any considerable part of the trust property be improved, $25 ; if trust property be unimproved, $15. Closing or Distribution Fee: 1/20 of 1% of market value of property conveyed or distributed, with a Minimum Fee of $15, if the closing or distribution be made during the lifetime of the trustor; or 1% of the market value of the property conveyed or distributed, with a Minimum Fee of $50, if the closing or distribution be made after the death of the trustor. Transfer of certificate of beneficial interest: $2.50. notes The acceptance fee is a charge independent of the fee for the first year's services. The Annual Fee is to be prorated for fractional parts of years. This fee covers all ordinary managerial services. The closing or distribution fee is a charge' independent of the Final Annual Fee. Income tax reports, $2.50 each and up. Fees paid to attorneys for preparing documents or other services shall be an extra charge. 472 APPENDIX 473 schedule two Subject: Holding Title to Real Estate, with no Duty or Responsibility Other than to Convey or Lease as Directed Acceptance Fee: i/io of i% of the market value of the trust property. Minimum: $15. The acceptance charge may be made on the basis of $5.00 for each certificate of beneficial interest, the entire charge, how- ever, to be not less than i/io of 1% of the market value of the trust property, with minimum as above. Annual Fee: i/io of 1% of the market value of trust property. Min- imum: $15. Closing or Distribution Fee: 1/20 of 1% of the market value of prop- erty conveyed or distributed, ^with a minimum fee of $15, if the closing or distribution be made during the lifetime of the trustor; or 1% of the market value of the property conveyed or distributed, with a minimum fee of $50, if the closing or distribution be made after the death of the trustor. Transfer of certificate of beneficial interest : $2.50. notes The Acceptance Fee is a charge independent of the fee for the first year's services. The Annual Fee is to be prorated for fractional parts of years. This fee covers all ordinary services incident to the trust, except those in connection with the Acceptance and Closing. The Closing or Distribution Fee is a charge independent of the Final Annual Fee. Fees paid to attorneys for preparing documents or other services shall be an extra charge. schedule three Subject: Holding Title to City and Country Real Estate Subdivisions ; Executing Contracts of Sale and Deeds ; and Collecting and Distributing Proceeds Acceptance Fee: i/io of 1% of the minimum sale price of the lots in the subdivision. Minimum : $75. Collection Fees: i to 2% of sale price, if sale is for cash, or i' 474 APPENDIX principal payments do not exceed three in number; 3% of sale price if principal payments exceed three in number. Mortgages given by purchasers to beneficiaries or assigned to beneficiaries, to cover prin- cipal payments are, for the purpose of determining fees, to be treated as cash payments, but if held by the Trustee and on same terms as con- tract, same collection fees shall be paid. Annual Fee : The trust must produce an annual return, from collections or otherwise, equal to 1/5 of 1% of the lowest authorized sale price of the trust property, with a minimum annual fee of $50. Closing Fee: After property is all sold and collections made, upon making final distribution and taking up and cancelling outstanding Declaration of Trust and Assignments, charge $2.50 for each interest. Minimum fee: $25.00. If trust is closed by mutual agreement before all the property is sold, the fee shall be one-half of the anticipated fee on the unsold lots or parcels, on the basis of cash sales. Minimum fee: $50.00. Accepting Assignments of Contracts: $1 each, to be paid by the assignee. Deeds: $2 each. Contracts in duplicate, $2 each. Income Tax Reports, $2.50 each and up. Fees paid to attorneys for preparing documents or other services shall be an extra charge. schedule four Subject: Holding Title to Real Estate Under Trust Deed to Secure Debt Southern California: No acceptance fee. First two notes certified free — all additional notes, 50 cents ^ach. Reconveyance fee: $2 if less than $25,000; $25,000 to $50,000 — $5; over $50,000 — $10. Trustee's fee under ordinary sale of property, when trust deed secures a sum: Not exceeding $ 500.00 $ 50.00 Over $ 500, not exceeding 750.00 75.00 Over 750, not exceeding 1,000.00 100.00 Over 1,000, not exceeding 2,000.00 150.00 APPENDIX 475 Over 2,000, not exceeding 3,500.00 200.00 Over 3,500, not exceeding 5,000.00 250.00 Over S>oo*'> Jio' exceeding 7,500.00 300.00 Over 7,500, not exceeding 10,000.00 350.00 Over 10,000, not exceeding 15,000.00 400.00 $50 for each $5000 or fraction thereof over $15,000 Advertising services and posting expenses, extra. Fees paid to attorneys for preparing documents or other services shall be an extra charge. Northern California: No schedule. schedule five Subject: Trustee of Court Estates (not including estates in which fees are fixed by law) Annual Pee: j4 of 1% of the appraised value of the trust property. Minimum: $25. First year, $15 extra. Distribution Fee: 1% of the appraised value of the property con- veyed or distributed. Minimum, $25. Attorneys' fees for accounts, sales, and litigation, extra. NOTES The Annual Fee is to be prorated to cover fractional parts of years. Charities free, if desirable. schedule six Subject: Administrative Officer of Estate in Which Fees Ake Fixed by Law No variation from statutory fees. schedule seven Subject: Investment of Trust Funds. Holding Estate of Living Person to Manage, Convert and Re-Invest, and to Collect ai-d Distribute the Income Thereof Acceptance Fee: i/io of 1% of the market value of trust property. Minimum: $10. 476 APPENDIX Annual Fee: yi of i% if trust estate is cash; 6/10 of 1% if estate is cash and securities; and J4 of i%t if estate consists of mixed assets including real estate, of the market value of trust property. Minimum: $25. Closing or Distribution Fee: 1/20 of 1% of the market value of prop- erty conveyed or distributed. Minimum: $15, while trustor is living; thereafter i % of the value of the trust property. Minimum : $25. NOTES The Acceptance Fee and the Closing Fee are each separate from the Annual Fee. The Annual Fee is to be prorated to cover fractional parts of the years. Charities free, if desirable. Income Tax Reports — $2.50 each and up. Fees paid to attorneys for preparing documents or other services shall be an extra charge. schedule eight Subject: Trustee Under Bond Issue Acceptance Fee: i/io of 1% of the amount of the authorized issue. Minimum: $100. Annual Fee: 1/20 of 1% of the amount of the authorized issue (ex- clusive of bonds previously retired). Minimupi: $25. • Closing Fee: 1/20 of 1% of the amount of the authorized issue (ex- clusive of bonds previously retired). Minimum: $50. Other Fees: Certification of Bonds: 50 cents each. Registration of Bonds : 50 cents each. Partial Releases: If release schedule: i/io of 1% of the release value of the property released. Minimum charge :, $2.50. If no release schedule, Minimum charge: $25. Handling release funds: i/io of 1% on amount of money disbursed. Handling Sinking Fund money : inserting advertisement, checking bids, purchasing and cancelling bonds: Minimum: >^ of 1% on money handled and cost of advertisement. Payment of interest: J4 of 1% of amount disbursed; if Fiscal Agent, Vi of 1%. Income Tax Reports, $2.50 each and up. Cancellation of registration and re-registration of bond involving APPENDIX 477 examination of Letters Testamentary or court proceedings, $io addi- tional to usual charge. NOTES The Annual Fee is a charge independent of all others, to cover con- sultations, correspondence, postage, replies to' inquiries, and other inci- dental services for which no specific charge is made. These charges are exclusive of costs expended, such as attorneys' fees, appraisers' fees, etc. Extraordinary services should be covered by a Special Service Clause in the Deed of Trust. If proceedings under jurisdiction of the Bank Superintendent or Cor- poration Commission, extra charge to cover examination of and to com- ply with requirements of these departments. schedule nine Subject: Agent fqr the Registration of Corporate Bonds, Where NOT Trustee Under Bond Issue Acceptance Fee: Minimum: $ioo to cover prehminary work and in- vestigating issue. Registration of bonds: 50 cents each. Annual Fee: Not less than $15. Cancellation of registration and re-re gistraiion of bond involving ex- amina-tion of Letters Testamentary or court proceedings, $10 additional to usual charge. schedule ten Subject: Agent foe the Registration of Corporate Stocks Acceptance Fee: RKnimum: $100 to cover preliminary work, etc. Cancellation and registration of certificates: 25 cents each. If examination of Court Order or Court Proceedings required, $10 additional to usual charge. Annuel Fee: The trust shall earn a minimum of $100 per year. schedule eleven Subject: Agent for the Transfer of Corporate Stocks Acceptance Fee: Minimum: $100 to cover preliminary work, etc. Cancellation of certificates: 25 cents each. 478 APPENDIX Reissuance of certificates: 25 cents each. If examination of Court Order or Court Proceedings required, $10 additional to usual charge. This covers attorneys' fees. Annual Fee: The trust shall earn a minimum of $100 per year. schedule twelve Subject : Agencies and Attorneys in Fact — General and Special — WITH NO Responsibilities for Investments Agencies involving handling of property. Acceptance Fee: 1/20 of 1% of market value of trust property. Min- imum : $10. Annual Fee: 1/3 to 1/2 of 1% of value of the property in agency, prorated to cover fractional parts of years. Minimum: $10. Closing Fee: 1/20 of 1% of the market value of the property. Mini- mum: $10. Income Tax Reports, $2.50 each and up. Attorneys' fees extra. schedule THIRTEEN' Subject: Agencies: Collection and Distribution of the Principal AND Interest of Funds and Securities Acceptance Fee: 1/20 of 1% of the market value of property. Annual Fee: % oi \% oi principal in cases in which the trustee does not make the investment. If trustee makes' the investment, then the annual charge should thereafter be J/2 of 1% of the principal invested (J4 of 1% of principal still standing as the annual charge against funds not invested by the trustee) . Minimum : $10. The annual charge should be prorated to cover fractional parts of years. Closing Fee: 1/20 of 1% of the market value of property. schedule fourteen Subject: Holding Title to Collateral or Other Property, Other than Real Estate, to Secure Obligation Annual Fee: If trustee has no responsibility as to the collection and distribution of principal and interest, 1/30 0/1% of market value of collateral not exceeding $1,000,000 in amount. If trustee has some APPENDIX 479 duty or responsibility in connection with the collection and distribution of interest of principal, i/S of I % of market value of collateral not ex- ceeding $1,000,000 in amount. Annual Fee to be prorated to cover fractional parts of years. Minimum: $15. Sales Fee: If sale is made to pay defaulted obligation, a fee should be charged on the same basis as sales made under Trust Deeds. Closing Fees: Same as annual fee. NOTE If the collateral be real estate, with duties and responsibilities of management, Schedule One will apply. If it be real estate, with no duty or responsibility other than to convey. Schedule Two will apply. MISCELLANEOUS 1. Depositary of securities, $2.50 per $jooo of value. 2. Vault space, $25 per cubic foot per annum. 3. Organization and re-organization of corporations, $250 and up. 4. Corporate Secretary or Treasurer, $10 to $150 per month. NEW YORK STOCK EXCHANGE Requirements from Applicants for Listing Stocks or Bonds November ii, 1919 An application, conforming to these requirements, signed by an execu- tive officer of the applying corporation, voting trustees, or depositary committees, and nine printed or typewritten copies must be filed with the Secretary of the Exchange at least five days prior to date set for con- sideration. Applications must be accompanied by the required papers and agree- ments, and by a check for one hundred dollars for each $1,000,000, or portion thereof, of each class of security, or for each 10,000 shares, or portion thereof, of stock without nominal or par value; checks to be drawn to the order of " Treasurer, New York Stock Exchange." In addition, companies making application are required to pay cost of printing. Printer's bill will be submitted directly to the applicant. An application for listing of Governmental, State, County or Munici- pal securities should be signed by a properly accredited official or by financial representatives. Specimen applications furnished on request. REQUIREMENTS FOR ORIGINAL LISTING Stock. For form of certificates eligible to be listed under this- classification, and list of papers to be furnished, see following pages. Every application for an original listing of capital stock shall recite: A Title of corporation. B (i) State authorizing incorporation; (2) (a) date, (b) duration, (c) rights. C (i) Business; (2) special rights or privileges granted directors by charter or by-laws. D (i) Whether capital stock is full paid; (2) non-assessable; and (3) liability attaching to shareholders. 480 APPENDIX 481 £ (i) Issues (by classes), dividend rate and par value; (2) total amount of each, authorized and issued; (3) increases and authority therefor, including (a) action by stockholders, (6) by directors and (c) by public authorities, etc.; (4) amount unissued, (a) options or contracts on same, (6) specific reservation for conversion. F If preferred stock; (i) whether cumulative or non-cumulative; (2) preferences including (a) voting power; (&) dividends; (c) distribu- tion of assets on dissolution or merger; (d) redemption; (e) con- vertibility. G Voting power of obligations of debt. H (i) Purpose of issue; (2) application of proceeds; (3) amount issued for securities, contracts, property; description and disposition; (4) additional property to be acquired, with particulars, as required by para- graph M. I (1) History of corporation; (2) (o) of predecessor companies, or firms, with location and stock issues; (&) conditions leading to new organization. / Tabulated list of constituent, subsidiary, owned or controlled com- panies showing (a) date of organization; (6) where incorporated; (c) duration of charter; (d) business and {e) capital stock issues (by classes), par value, amount authorized, issued, owned by parent company. K (i) Mortgage, and (2) other indebtedness, (o) date, (6) maturity, (c) interest rate, (rf) redemption by sinking fund or otherwise, (e) amount authorized, and (/) amount issued; (3) similar information re- garding mortgage and all indebtedness of constituent, subsidiary, owned, or controlled companies. L Other liabilities, joint and several, (i) guaranties, (2) leases, (3) traffic agreements, (4) trackage agreements, (5) rentals, (6) car trusts, etc., (7) similar description of other easements; (8) terms of each, and provision for payment; (9) similar information as to constituent, sub- sidiary, owned, or controlled companies). Af (i) Description, location, nature and acreage of property, (a) owned in fee; (&) controlled; (c) leased; (2) railroads, mileage com- pleted, operated and contemplated; (3) equipment; (4) character of buildings and construction; (5) tabulated list of franchises showing (a) where granted, (6) date, {c) duration, (d) purpose; (6) timber, fuel, or mining lands, water rights; (7) similar information as to constituent, subsidiary, owned, or controlled companies. N Policy as to depreciation. O (i) Character and amount of annual output for preceding fiv? 482 APPENDIX years; (2) estimated output (character and amount) for current year; (3) number of employees. P (i) Dividends paid; (2) by predecessor, and constituent, subsidiary, owned, or controlled companies. Q Financial statements; (i) earnings for preceding five years, if available; (2) income account of recent date for at least one year; (3) balance sheet of same date; (4) similar accountings for predecessor, constituent, subsidiary, owned, or controlled companies; (5) corpora- tions consolidated within one year previous to date of application, in- come account and balance sheet of all companies merged and balance sheet of applying corporation; (6) if in hands of receiver within one year previous to date of application, (o) income account and balance sheet of receiver at time of discharge, and ^6) balance sheet of com- pany at close of receivership. R Agreements contained on page 488. S Fiscal year. T Names of (i) officers; (2) directors (classified) with addresses; (3) transfer agents and (4) registrars, with addresses. U Location of principal and other offices of corporation. V Place and date of annual meeting. In addition to the above, applications from corporations which own or operate mines must recite : A Patented and unpatented claims, by numbers. B (1) Geological description of country; (2) location and descrij)- tion of mineral and other lands; (3) ore bodies; (4) average value of ore; (5) character; and (6) methods of treatment. C History of workings, (i) results obtained; (2) production each year. D (i) Ore reserves compared with previous years showing separately as to character and metal content; (2) estimate of engineer as to probable life of mines; (3) probabilities by further exploration. E (i) Provisions for smelting and concentration; (2) cost of (a) mining, (6) milling and smelting, (c) transportation; and (3) prox- imity of property to railway or other common carrier. P Properties in process of development; infcome account if available, guaranties for working capital and for, completion of development. G Total expenditures for preceding five years for acquisition of new property, development, proportion charged to operations each year. APPENDIX 483 H (i) Policy as to depletion; (2) acquisition of new property; (3) new construction and development. / Annual reports for preceding five years, showing number of tons of ore treated, average assay, yield, percentage of extraction, recovery per ton of ore. In addition to the above, applications from corporations which own or operate oil and gas wells must recite: A (i) Brief history of oil field; (2) character and gravity of oil. B (i) Total area of oil land (developed and undeveloped), (a) owned, (6) leased, (c) controlled, (d) proven, (e) under exploitation, (/) royalties. C (i) Number of wells (oil or gas) on each property, (a) in opera- tion, (6) drilling, (c) contemplated; (2) average depth of wells drilled (a) shallowest, (6) deepest, (c) probable life; (3) whether oil lands are dipping. D (i) Gross daily production — initial and present; (2) annual gross production from each property for past five years, if available; (3) estimated output for current year. E (i) Storage, capacity and location; (2) (o) amount of oil stored, (6) character, (c) value; (3) pipe line, (o) gauge, (6) capacity, (c) mileage. F (i) Refineries, (0) capacity, (6) acreage, (c) employees, (rf) products and by-products. G Properties in process of development, in'Come account if available, guaranties for working capital and for completion of development. H Total expenditure for preceding five years for acquisition of new property, well drilling and development, proportion charged to opera- tions each year, / (i) policy as to depletion; (2) acquisition; and (3) development of new properties. {Note: For requirements as to voting trust or stock trust certificates, or certificates of deposit, see Page 485.) Bonds. For form of securities eligible to be listed under this cUssification, and for list of papers to be furnished, see following pages. An application for an original listing of bonds shall recite all infor- mation required for listing stock, and 484 APPENDIX A (i) Amount, denominations and numbers; (2) full title; (3) amount authorized and outstanding, authority therefor, including (a) action by stockholders, (&) directors, and (c) public authorities, etc.; (4) whether bonds are coupon (registerable as to principal) or regis- tered, interchangeable or exchangeable; (5) exchangeability or con- vertibility into other securities, and terms. B Names and addresses of trustees. C (i) Date of issue and maturity; (2) interest rate; (3) places at, and dates for payment of interest and principal; (4) where registerable or transferable; (5) kind and standard of money and options; (6) tax exemption; (7) whether redeemable or purchasable in whole or part, showing (a) dates, (fc) price, (c) duration of published notice. D Provisions for declaration of principal due and payable in event of .default of payment of interest, or other defaults, and waiver ; per- centage of outstanding bonds controlling trustee. £ Purpose of issue and application of proceeds, similar to that called for by Paragraph H of the Requirements for Listing Stock ; provisions as to additional issue. F Disposition of bonds refunded, redeemed or purchased for sinking fund, and mortgage securing same. G Mortgage or indenture provisions for (i) serial issues; (2) values in United States gold coin; (3) issuance in foreign languages and (4) that the English version governs; (5) terms of exchangeability of bonds payable in foreign places for bonds payable in United States or vice versa. H (i) Security — Mortgage, indenture of trust, or other agreement; and (2) liens; (0) properties covered, (b) mileage of railway lines, (c) buildings, (d) equipment, (e) securities, (/) rights, (g) privi- leges, (h) titles, (i) franchises, (;') leases, etc.; (3) other liens cov- ering same or any part of same properties, (4) guaranty and terms. / Any unusual additions or limitations. Requirements for Listing of Additional Amounts. For list of papers to be furnished, see page 486. Refer to previous applications and last application by number and date; and recite: A Title of corporation and name of state authorizing incorporation. B (i) Securities applied for; (2) amounts authorized; (3) authority APPENDIX 485 for issue, including (a) action by stockholders, (6) by directors and (c) by public authorities, etc. C (i) Purposes of issue; (2) application of proceeds; (3) amount, description and disposition of securities exchanged for new issues; (4) additional property acquired or to be acquired, with particulars as required by paragraph M of the Requirements for Listing Stock. D (i) Dividends; (2) also by constituent, subsidiary, owned, or con- trolled companies, since previous application, E Changes, if any, in (i) charter, (2) by-laws, or (3) capitali- zation. F Details as to property acquired and property disposed of, since last application. G (i) Character and amount of output since last application; (2) estimated output (character and amount) for current year; (3) num- ber of employees. H Income account and balance sheet of recent date, also for con- stituent, subsidiary, owned, or controlled' companies, or a consolidated income account and a consolidated balance sheet. I Names of officials, location of offices, place and date of annual meet- ing, fiscal year, as covered by Paragraphs S, T, U, V, of Requirements for Listing Stock. {Note : " When a corporation purposes td increase its authorised capital stock, thirty days' notice of such proposed increase mtist be officially given to the Exchange, before such increase may be admitted to dealings.") {Note: "When the capital stock of a corporation is increased through conversion of convertible bonds already listed, the issuing cor- poration shall give immediate notice to the Exchange and the Committee on Stock List may, thereupon, authorise the registration of such shares and add them to the list.") Requirements for Listing of Certificates of Deposit, Voting Trust or Stock Trust Certificates,, Etc. For form of certificates eligible to be listed under this classification, and list of papers to be furnished, see following pages. Every application for the listing of certificates of deposit, voting trust or stock trust certificates, etc., shall recite : A (i) Name of applicant; (2) amount applied for; (3) additional amounts to be listed; (4) depositary; (5) security deposited; (6) whether listed ; (7) registrar. 486 APPENDIX Applications for each class of deposited securities shall be separate and certificates issued of distinctive colors. B (i) Date of agreement; (2) names of committee, or voting trustees; (3) terms of trust; (4) powers and duties of committee, trustees, or depositary. C Reasons for deposit. D (i) Duration of trust or deposit; (2) extensions or limitations; (3) final date of deposits; (4) provision for deposits without penalty for approximately thirty days after listing, or if no time limit for deposit of securities without penalty, is fixed, an agreement that approximately thirty days' notice of such limitation of time shall be published and given to the Stock Exchange; (5) date of presentation of plan; (6) provisions for dissent and withdrawal; (7) percentage necessary to adoption; (8) pro rata charges; (9) provisions for return of securities (or equivalent) ; (10) provision for payment of interest, dividends, etc. E Agreement to deliver definite securities at termination of Voting Trust or Voting Trust to be extended. F Agreement to have definitive securities listed. {Note : Applications to list voting trvLst or Mock trust certificates and certificates of deposit for securities not a delivery on the Stock Exchange, must, in addition, comply with the Requirements for Listing Stock.) I Papers to Be Filed with Applications. In addition to application for listing, the foUov^ing papers must be filed: For Stocks : 1. Ten copies of charter, with amendments to date, one copy attested by proper public authority. 2. Ten copies of by-laws, with amendments to date, one copy at- tested by an executive officer of corporation. 3. Ten copies of leases, franchises, easements and special agreements, one copy of each attested by an executive officer of corporation. 4. One copy of resolutions of stockholders and directors and copy of proper public authority authorizing issue, each attested by an exec- utive officer of corporation. 5. One copy of resolutions of stockholders or directors, and copy of proper public authority, authorizing issue of stock on conversion for other securities, attested by an executive officer of corporation. 6. One copy of resolutions of stockholders or directors directing specific reservation of authorized stock for conversion, attested by an executive officer of corporation. APPENDIX 487 7. One copy of resolutions of stockholders^ board of directors or ex- ecutive committee, attested by an executive officer of corporation, au- thorizing, by name, official to appear for listing securities (form may be had on application). 8. Opinion of counsel (not an officer or director of the corporation) as to legality of (o) organization, (6) authorization, (c) issue, and (d) validity of securities. The Committee will not accept the opinion of an officer or director of an applying corporation nor of a firm in which the officer or director is a member, as counsel on any legal ques- tion affecting the corporation; nor will it accept the opinion of an officer or director of a guarantor corporation, nor of a firm in which the officer or director is a member, on any legal question affecting the issuance of guaranteed securities. 9. Detailed distribution of securities and five copies (form may be had on application). 10. One copy of resolution appointing transfer agent and registrar, attested by an executive officer of corporation. 11. Certificate of registrar of amount of securities registered at date of application, 12. Report of qualified engineer covering actual physical condition of property at recent date. 13. Map of property and contemplated extensions. 14. Specimens of all securities to be listed. For Bonds: 15. All papers required for listing stocks and also ten copies of the mortgage or indenture, one copy (a) certified to by trustee, (b) with copies of all certificates of proper recording. 16. Trustees' certificate required on Page ^0. 17. One copy of resolutions of stockholders or directors, and copy of proper public authority, authorizing issue of stock on conversion of bonds, attested by an executive officer of corporation. 18. One copy of resolution of stockholders or directors directing specific reservation of authorized stock for conversion, attested- by an executive officer of corporation. 19. Certificate of disposition of securities redeemed or refunded. 20. Certificate as to collateral deposited. 21. Certified copy of release or satisfaction „of underlying mortgages. For Securities of Reorganized Corporations: I. All papers required above for listing stocks and bonds. Opinion 488 APPENDIX of counsel shall state that proceedings have been in conformity with legal requirements, that title to property is vested in new corporation and is free and clear from all liens and incumbrances, except as dis- tinctly specified; and also as to equities of securities of predecessor corporation. 2. Certified order of court confirming sale on foreclosure or other authority for reorganization. 3. Certified copy of plan of reorganization. 4. Income account ; balance sheet at close of receivership, if available. 5. Balance sheet at date of organization. For Additional Amounts: 1. Nos. 4, 5, 6, 7, 8, 9, II, of papers required for original listings. 2. Nos. I, 2, 3, 10, 12, of said papers for stock, if any changes have occurred therein since last listing. 3. Nos. 15, 16, 17, 18, 19, 20, 21, of said papers for bonds, if any changes have occurred therein since last listing. 4. Certified copy of proper public authority for increase. For Certificates of Deposit, Voting Trust, Etc.: 1. Papers required above for listing stocks or bonds. 2. Certified copies of any legal proceedings and court orders. 3. Ten copies of deposit or trust agreement, one certified to by proper authority. 4. Ten copies of circulars, issued by trustees or committee, one cer- tified to by proper authority. 5. Amounts deposited. 6. Detailed distribution (form may be had on application). Agreements. To be made part of all applications : 1. Not to dispose of its stock interest in any constituent, subsidiary, owned or controlled company, or allow any of said constituent, sub- sidiary, owned or controlled companies to dispose of stock interests in other companies unless for retirement and fcancellation, except under existing authority or on direct authorization of stockholders of the company holding the said companies. 2. To publish at least once in each year and submit to the stockholders, at least fifteen days in advance of the annual meeting of the corporation, a statement of its physical and financial condition, an income account covering the previous fiscal year, and a balaftce sheet showing assets APPENDIX 489 and liabilities at the end of the year; also annually an income account and balance sheet of all constituent, subsidiary, owned or controlled companies ; or a consolidated income account and a consolidated balance sheet. 3. To maintain, in accordance with the rules of the Stock Exchange, a transfer office or agency in the Borough of Manhattan, City of New York, where all listed securities shall be directly transferable, and the principal of all listed securities with interest or dividends thereon shall be payable; also a registry office in the Borough of Manhattan, City of New York, other than its transfer office or agency in said city, where all listed securities shall be registered. 4. Not to make any change in listed securities, of a transfer agency or of a registrar of its stock, or of a trustee of its bonds or other siecuri- ties, without the approval of the Committee on Stock List, and not to select as a trustee an officer or director of the company. 5. To notify the Stock Exchange in the event of the issuance of any rights or subscriptions to or allotments of its securities! and afford the holders of listed securities a proper period within which to record their interests after authorization, and that all rights, subscriptions or allot- ments shall be transferable, payable and deliverable in the Borough of Manhattan, City of New York. 6. To notify the Stock Exchange of the issuance of additional amounts of listed securities, and make immediate application for the listing thereof. 7. To publish promptly to holders of bonds and stocks any action in respect to interest on bonds, dividends on shares, or allotment of rights for subscription to securities, notices thereof to be sent to the Stock Exchange, and to give to the Stock Exchange at least ten days' notice in advance of the closing of the transfer books or extensions, or the taking of a record of holders for any purpose. 8. To redeem preferred stock in accordance with the requirements of the Stock Exchange. 9. To notify the Stock Exchange if deposited collateral is changed or removed. The Committee recommends a date be fixed as record for dividends, allotment of rights and stockholders^ meetings, without closing the transfer books. Notice of rights, allotments, subscription privileges, etc., to bond- holders and shareholders, should be as of a date after authorization. Forms for warrants may be had on application. 490 APPENDIX Trustees of Mortgagees. The Committee recommends that a trust company or other financial corporation be appointed trustee of mortgages, indentures, and deeds of trust ; and when a State law requires the appointment of an individual as trustee, a trust company or other financial corporation be appointed as co-trustee. Each mortgage, indenture, or deed of trust should be represented by a separate trustee. The Committee will not accept as trustee: (a) An officer or director of the issuing corporation; (b) A corporation in which an officer of thp issuing corporation is an executive officer. The trustee shall present a certificate accepting the trust and certifying (i) securities are issued under the terms of the mortgage or indenture, giving the numbers and amounts certified; (2) collateral is deposited; (3) disposition of prior obligations. For additional issues of bonds, the trustee must certify that (i) an increase is iti conformity with terms of mortgage or indenture; (2) additional collateral deposited; and (3) disposition of prior obligations. The company and trustee shall notify the Stock Exchange of the hold- ing, cancellation, or retirement of securities, by redemption, through the operation of sinking fund or otherwise. The trustee must notify the Stock Exchange if deposited collateral is changed or removed, and furnish a list of collateral substituted. A change of trustee shall not be made without the approval of the Committee. Transfer and Registry. Every corporation whose securities are listed upon the Stock Exchange must, in accordance with the rules of the Exchange, maintain (o) a transfer office and (6) a registry office, both in the Borough of Manhattan, City of New York. The transfer agency and registrar shall not be identical, and both must be acceptable to the Committee. A company cannot act as registrar of its own stock. Where a stock is transferred at the company's office, the transfer agent or transfer clerk shall be appointed by specific authority of the board of directors to countersign certificates, in said capacity, and shall be other than an officer who is authorized to sign certificates of stock. The entire amount of the capital stock of a corporation listed upon the Stock Exchange must be directly transferable at the transfer office APPENDIX 491 of the corporation in the Borough of Manhattan, City of New York. When a corporation makes transfer of its sh'^res in other cities, cer- tificates shall be interchangeable, and identical in color and form, with the New York CertHicates, except as to names of transfer agent and registrar; and the combined amounts of stocks registered in all cities shall not exceed the amount authorized to be Jisted. Interchangeable certificates must bear a legend reciting the right of transfer in New York and other cities. The registrar must file with the Secretary of the Stock Exchange an agreement to comply with the requirements in regard to registration and not to register any listed stock, or any increase thereof, until authorised by the Committee. Certifications of registry must be dated and signed by an authorized officer of the registrar. A change in the form of a security, of a transfer agency, or of a registrar, shall not be made without the approval of the Committee. Forms of Certificates, Engraving, Etc. GENERAL REQUIREMENTS (Sec Specific Requirements below.) All securities for which listing upon the Stock Exchange is requested, except as otherwise herein stated must be engraved and printed in a manner satisfactory to the Committee from at least two steel plates by an engraving company whose work the Committee is authorized by the Governing Committee to pass upon; the name of the engraving company must appear upon the face of all securities and also upon the face of coupons and the title panel of each bond. Securities must bear a vignette upon their face. Said plates shall be: (i) A border and tint plate from which should be made a printing in color underlying important portions of the face printing; (2) A face plate containing the vignettes and descriptive or promissory portion of the document, which should be printed in black or in black mixed with a color. The combined effect of the impression from these plates must be as effectual security as possible against counterfeiting. The printing of securities should be in distinctive colors, to make classes and denominations readily distinguishable. All certificates, except as otherwise stated herein, must provide for transfer and for registration with dates; when a corporation makes 492 APPENDIX transfers of its shares in other cities, certificates shall be identical in color and form, with the New York certificates, except as to names of transfer agent and registrar; interchangeable certificates must bear a legend reciting the right of transfer in New York and other cities. The Committee recommends that the text of securities shall provide for transfer, in person or by duly authorised attorney, upon surrender of the security properly endorsed. A change in the form of a security, transfer agency, registrar, or trustee of bonds, shall not be made without the approval of the Com- mittee. The Committee will object to any security upon which an impress is made by a hand stamp, except for a date or power of substitution. BONDS (In addition to the General Requirements outlined above, the following apply specifically to bonds.) All bonds must be fully engraved and printed in a manner satisfactory to the Committee; face of bonds and coupons' must bear a vignette. The text of bonds should recite conditions of issuance, terms of re- demption, by sinking fund or otherwise, convertibility, default, inter- changeability or exchangeability of coupon and registered bonds, and conversion into other securities. Bonds, in the text and on the reverse must recite payment of principal and interest and transfer and registration in the Borough of Manhattan, City of New York. Coupons must recite payment of interest in the Borough of Manhattan, City of New York. Registered bonds must carry a power of assignment in such form as the Committee may approve. The Committee recommends that registered bonds be made inter- changeable with coupon bonds. Registered bonds interchangeable with coupon bonds and coupon bonds exchangeable for fully registered bonds shall bear a legend reciting the fact. Coupon bonds issued in denominations of less than $i,ooo should provide for exchangeability into coupon bonds of $i,ooo, the smaller bonds to bear a legend reciting such privilege.. Registered bonds made such by detaching coupon sheets are not eligible for listing. APPENDIX 493 FORMS OF LEGENDS FOR* BONDS For a coupon bond of a thousand dollars exchangeable for coupon bonds of smaller denominations : " The holder of this bond may, at his option, on surrender and cancellation and on payment of charges, as provided in the indenture, receive in exchange coupon bonds of this issue for an amount aggregating $i,ooo in denominations of $ of numbers not contemporaneously outstanding." For coupon bonds of smaller denominations exchangeable for a $500 or a $1,000 coupon bond: " The holder of this bond may, at his option, on surrender and cancellation of this bond and others of the same issue aggregating $500 or $1,000 and orf payment of charges, as provided in the indenture, receive in exchange a coupon bond of this issue of a number not contemporaneously outstanding, for the amount aggregated." For registered bond(s) issued for coupon bond(s) of denomination (s) of less than $1,000: "This bond is issued in exchange for coupon bond(s) of this issue numbered in denominations of $ not contemporaneously outstanding, aggregating the face value hereof and coupon bond(s) of this issue bearing the said num- ber(s) and of the same denomination (s) will be issued in ex- change for this bond upon surrender, cancellation and payment of charges provided in the indenture." For registered bond(s) issued for $1,000 coupon bond(s) : "This bond is issued in exchange for coupon bond(s) of this issue numbered for $1,000 (each), not con- temporaneously outstanding, and coupon bond(s) of this issue bearing the said number (s) will be issued in exchange for this bond upon surrender, cancellation and payment of charges pro- vided in the indenture." 494 APPENDIX STOCK (In addition to the above General Requirements, the following apply specifically to stock certificates.) The border and tint plate for one-hundred share certificates of stock shall have said denomination engraved thereon in words and figures; the plates for smaller amounts shall bear some engraved, device whereby the exact denomination of the certificate may be distinctly designated by perforation; also conspicuously upon the face " Certificate for less than one hundred shares." Certificates for every class of stock shall recite preferences of all classes. Certificates of stock should recite (i) ownership; (2) par value; (3) whether shares are full paid and (4) non-asstessable ; (5) preference as to dividends; (6) distribution of assets upon dissolution or merger; (7) terms of redemption; (8) convertibility; (9^ voting power, or (10) other privilege; and (11) must bear the foUoAYing legend: This certificate is not valid until countersigned by the transfer agent, and registered by the registrar. The following form is required upon the reverse of a certificate of stock : For value received hereby sell, assign and transfer fi S. S, S S unto oofaSC shares | | S H f of the * capital stock represented by the within certificate personally came to me known to be the individual named in the annexed Certificate of Stock (or Bond) and described in and who executed the foregoing* Instrument, and acknowl- edged to me that he executed the same. SEAL APPENDIX 509 Form No. 12. Acknowledgement on a Detached Assignment executed by a Firm. State of County of On this day of 19. . . .before me, a Notary Public for the County of personally appeared to me known and known to me to be one of the firm of named in the annexed Certificate of Stock (or Bond) and described in and who executed the foregoing Instrument, and acknowledged that he executed the same as the act and deed of said firm. If used for a firm that has dissolved, see instructions in Form No. 3. BIBLIOGRAPHY Periodicals and Annual Publications Special references to articles in the periodicals, here listed are, as a rule, not given in this bibliography. The American Bankers' Association in its Library, s Nassau Street, New York, maintains a classified index of periodical literature, with references to the current financial publications. The Li|)rary includes a loan depart- ment, from which collections of articles on special subjects will be sent on request to its members. The American Economic Review. Published quarterly by the American Economic Association, Princeton, N. J. rgii to date. Contains reviews, names of new books, and abstracts of articles in current periodicals, classified under a variety of topics, including Accounting, Money, Credit and Banking, etc., etc. The most complete reference list for current literature on subjects allied to trust companies. The American Year Book. Edited by Francis G. Wickware, New York and London, Appleton. Section on Public Finance, Banking and In- surance. The Bankers' Magazine. New York. Published monthly. 1846 to date. Contains Proceedings of the Meetings of the Trust Company Section, American Bankers' Association, and numerous other articles in regard to trust companies. The Banking Law Journal. New York. Published monthly. Contains re- ports of legal decisions affecting the business of trust companies. IMgest of the Banking Law Journal, 1889-1919, New York, 1919, 424 p. Con- tains a digest of all decisions which have appeared in the Journal from 1B89 to 1919. Bulletin of American Institute of Banking. New York. Published quarterly — July 1918 to date. Formerly the Bulletin of the American Institute of Bank Clerks; from July igio to 1918 it was combined with the Journal of the American Bankers' Association. Bulletin of the Public Affairs Information Service. New York, H. W. Wilson Co., 1915 to date. Weekly bulletins, bi-monthly and annual cumulations. Gives references not elsewhere available to laws, proposed legislation, court decisions, special reports and publications, etc The Commercial and Financial Chronicle. New York. Published weekly. Contains Proceedings of fhe Meetings of the Trust Company Section, American Bankers' Association, numerous articles in regard to the growth df trust companies, statements of their busiijess, etc. Comptroller of the Currency, Annual Reporfs of. Washington, D. C. 511 512 BIBLIOGRAPHY 187s to date. Contain information relative to the condition of banks and banking institutions, including trust companies, chartered and operated under state authority. Corporation Trust Company Income Tax Service. New York. Income tax laws, regulations, rulings and decisions. Information kept up to date by frequent supplements. Journal of the American Bankers' Association. New York. Published monthly. July 1908 to date. Contains proceedings of the Trust Com- pany Section of the American Bankers' Association, etc. Moody's Analyses of Investments. New York. Moody's Investors Serv- ice, Three parts issued annually: I. Steam Railroads, II. Public Utili- ties and Industrials, III. Government and Municipal Securities. New York, State of. Annual Reports of the Superintendent of Banks. Albany. 1875 to date. These reports give an interesting view of the rapid growth of trust companies in the State of New York, of legislation affecting them, and the strong and weak points in the system. Standard Corporation Card Service. New York. Standard Statistics Co. Daily revised descriptions of corporations and securities (on cards) sup- plemented by news service, dividend service, summaries, etc. State Bankers' Associations. Proceedings of the Bankers' Associations of many states contain references to trust company affairs. State Banking Departments. The Reports of the Banking Departments of most of the states contain more or less information in regard to the trust companies under their control. Trust Companies. New York. Published monthly. Devoted to the interests of trust companies in the United States. Established March, 1904. Con- tains much interesting and valuable matter, and should be read by all who wish to keep in touch with the latest ideas in regard to trust company organization and management. Trust Companies of the United States. Published by the United States Mortgage and Trust Company, New York. Contains statements of con- dition, dates of commencing business, quotations for stock. New York correspondents, officers, and directors of Trust Companies of the United States. Edition of 1903, statements of 912 companies ; 1904, 99S companies ; 1905, 1116 companies; 1906, 1305 companies; 1907, 1479 companies; 1908, 1470 companies; 1909, 1564 companies; 1910,= 1527 companies; 1911, 1616 companies; 1912, 1579 companies; 1913, 1732 companies, 1914, 1812 com- panies; 191S, 1777 companies; 1916, 1932 companies; 1917, 2009 companies; 1918, 2141 companies ; 1919, 2173 companies, xxxix, 588 p. Trust Company Section. American Bankers' Association, Proceedings of the Annual Meetings, 1896 to date. Proceedings 1896-1903 published in book form, 1904, 381 p.; Proceedings 1904-1908 published, 1909, 411 p. The proceedings of these meetings form a valuable contribution to the subject, and contain many important papers and discussions by the ablest trust company officers in this country. A mine of information. Trust Company Section. Pennsylvania Bankers' Association, Proceedings of the Annual Meetings of, 1901 to date. Included in the Proceedings of the Annual Conventions of the Pennsylvania* Bankers' Association. BIBLIOGRAPHY 513 Yearbook of Legislation. State Library Bulletins, published by the New York State Education Department, Albany. Includes Index of Legisla- tion, a minutely classified brief summary of new laws passed by all states, including votes on constitutional amendments and decisions de- claring statutes unconstitutional, and Review of Legislation, containing contributions from specialists in all parts of the country, reviewing gov- ernors' recommendations and laws enacted on each important subject, for the years l8go to igo8. Books and Articles on Trust Companies American Bankers' Association. Forms for Trust Companies selected and arranged by a committee of the Trust Company Section, from forms in use by Trust Companies of the United States. Second edition, New York, igio. 140 p. American Bankers' Association, Trust Company Section. Series of articles on functions of trust companies (for publicity purposes) prepared and distributed by the Section, 1913. Committee -on Publicity, Bulletin No. i, 1918, 21 p. Bulletin No. 2, 1919, 12 p. Banldng Law Journal. Banking forms; a practical and up-to-date set of banking forms arranged in groups covering the various departments in commercial banking institutions ; including trust company forms and sav- ings bank forms. N. Y. Banking Law Journal Co., 1917. 96 p. Barnett, George Ernest, Ph.D. State Banks and Trust Companies since the Passage of the National Bank Act. United States National Monetary Commission, 6lst Congress, 3d Session, Senate Document 659. Washington, Government Printing Office, 1911. 366 p. Contains statis- tical tables, summary of legislation, and account of growth of banks and trust companies. Barnett, George Ernest, Ph.D. The Growth .of State Banks and Trust Companies. Annals of the American Academy of Political and Social Science. November, 1910. Vol. XXXVI, p. 613-625. Barnett, George Ernest, Ph.D. Recent Tendencies in State Banking Regulation. Proceedings of Academy of Political Science. New York, January, 191 1. p. 270-284. Both these articles are based on information contained in the above report. BoLLES, Albert S. Practical Banking. Eleventh edition. Indianapolis, Levey Printing Co. 1903. Part IV, Loan and Trust Companies, p. 413-427, contains a brief sketch of their history, scope, method of con- ducting business and powers. California Bankers' Association, Legal forms for trust companies, compiled for the Trust Company Section. 1919. Cator, George. Trust Companies in the United States. Johns Hopkins University Studies. Baltimore, 1902. Series XX, Nos. 5-6, 113 p. A general outline of the subject, historical functions, state regulation, causes of development. Appendix contains sketches of two of the early trust companies, schedules of legislation, and tables of statistics. An important contribution to the subject. CoNANT^ Charles A. The Growth of Trust Companies, American Review SH BIBLIOGRAPHY of Reviews. November, 1902. Vol. XXVI, p. S74-S79. Abridged in Bankers' Magazine, January, 1903. CoNANT, Charles A. Wall Street and the Country. A study of recent financial tendencies. New York, 1904. 247 ^p. Ch. VI, p. 205-235, de- scribes the growth of American trust companies, their functions and man- agement, and discusses the question of reserves. Downer, Benjamin J. Digest of Laws Relating to Trust Companies of the United States. New York, George W. "Young and Co. 1905. 98 p. DowNERj Benjamin J. Compilation of Laws Relating to Trust Companies of the United States. Compiled by B. J. Downer, supervised by Philip S. Babcock. New York, 1909. vii, 516 p. A summary of the principal provisions of the banking laws of the several states and territories re- lating to trust companies. Ebersole, J. F. The Relation of State to National Banks. Proceedings of Academy of Political Science. New York, January, 1911. p. 285-296. FiSKE, Amos Kidder. The Modern Bank. New edition. New York, Apple- ton, 1919. 345 p. A description of its functions and methods, and a brief account of the development and present system of banking. Chapter on state banks and trust companies. Frissell, Algernon S. Trust Companies and Reserves. Annals of the American Academy of Political and Social Science. March, igo8, p. 463-469. Gest, William P. The Rise and Business of tlje Modem Trust Company. An address before the Century Current Topic Club of the Y.M.C.A. Philadelphia, 1905. 26 p. Harris, Virgil M. The Trust Company of To-day. The Banking Law Journal. February, 1905. Vol. XXII, p. 97-101. A description based on the organization of trust companies in the Middle West. Heaton, Ernest, B. A. Oxon. The Trust Company Idea and its Develop- ment. Buflfalo, Evans-Penfold Company, 1904. 45 p. Describes the origin and growth of trustee companies and official trustees in different countries, their functions and the legislation affecting them. With a list of trust companies in Australia, Canada, and England. Herkicic, Clay. The Definition and History of Trust Companies. An address delivered before the Chicago Chapter, American Institute of Bank Clerks. The Banking Law Journal, May, 1903. Vol XX, p. 329- 333 ; also Bankers' Magazine, August, 1903. Vol. LXVII, p. 208-213. Herrick, Clay. Trust Companies, their Organization, Growth and Man- agement. Second edition. New York, Bankers' Pub. Co., 1915. viii, 502 p., including forms. Bibliography, p. 177-486. " Composed of a series of articles which appeared in the Bankers' Magazine of New York during the years 1904-1907." The Bibliography appears in Vol. LXXVIII, P- 430-435. Hull, Walter Henry, Editor. Practical Problems in Banking and Cur- rency. Being a number of selected addresses delivered by prominent bankers, financiers, and economists. Edited by Walter Henry Hull, with an introduction by Hon. Charles Francis Phillips of New York. New BIBLIOGRAPHY 5^5 York, 1907. 596 p. The " Trust Company Section " of this volume con- tains eighteen addresses delivered between 1900 and 1906. Jackson, A. A. The Trust Company Day by Day. An address delivered before the Pennsylvania Bankers' Association. Philadelphia, igii. 13 p. Jones, Breckenridge. The Trust Company Question. A paper read before the Missouri Bankers' Association, June 9, 1892. Revised, June, 1898. 24 p. Difference between banks and trust companies. Reasons of their existence. Their powers. Legal safeguards. — An early, and still one of the best papers on the subject, which has been followed to a great extent by later writers and in trust company advertising matter. KiLEURN, Hon. Frederick D., State Superintendent of Banks, New York. Control and Supervision of Trust Companibs. Annals of the American Academy of Political and Social Science. July, 1904. Vol. XXIV, p. 27-42. The situation in New York State and other parts of the country, the business transacted, and need for additional legislation. Knox, John Jay. A History of Banking in the United States. New edition. New York, Bankers' Pub. Co., 1903. 900 p. Brief references by states to the laws under which trust companies are organized, the number of such companies, the amount and character of their business. Laughlin, J. Laurence, Editor. Banking Reform. The National Citizens' League for the Promotion of a Sound Banking System. Chicago, 1912. xii, 428 p. Chapter XV on State Banks and Trust Companies. Leaming, Thomas, Trust and Title Insurance Companies. Lippincott's Magazine. Philadelphi'a, December, 1888. Vol. XLII, p. 886-893. An early account of these companies in which their advantages are conceded and inherent objections which may result from perfunctory management are noted. Library Bureau. Records for Banks and Trust Companies. Boston. 64 p. Library of Congress. Select List of References on the Monetary Ques- tion. Compiled by H. H. B. Meyer and W. A. Slade. Washington, 1913. 247 p. Bibliography of trust companidis, p. 137-140. Martin, Wiluam McChesney. Modem Banking and Trust Company Methods. Banking Law Journal, New York. Appeared in instalments, Oct. 191 1 to Oct. 1918. Ch. XVIII on Trust Companies, 1916-1917. MiLLicAN, Alfred S. (compiler). Powers of Trust Companies. Milwau- kee, Wisconsin Trust Co., 1907. 55 p. Morgan, George Wilson, and Parker, Amasa J., Jr. Banking Law of Nev7 York, with supplement 1918, notes, annotations, references, and amendments of 1918. N. Y., Banks Law Pub. Co., 1918. vi, 553 p. Morris, Harrison S. A Sketch of the Pennsylvania Company for Insur- ances on Lives and Granting Annuities* Philadelphia, 1896, i58 p. A history of the oldest corporation in the United States transacting a trust and safe deposit business. This Company was founded in 1809, chaffered 1812, and granted trust powers in 1836. It was the first com- pany in Pennsylvania and the third in the United States to receive trust powers. New York, State of. The Banking Law. Laws of 1914, as revised, with 5l6 BIBLIOGRAPHY amendments to Jan. i, 1920, also personal income tax law, etc. Albany, N. Y., Legis. Index Pub. Co., 1919. 409 p. New York State. Report of Special Commission on Banks Submitted to Governor Hughes, Dec. 15, 1907. Albany, 1907. 45 p. A. Barton Hepburn, Edwin S. Marston, Edward W, Sheldon, Algernon S. Frissell, Stephen Baker, Andrew Mills, Commissioners. " In answer to the ques- tion : what, if any, changes are advisable in the law of the State relating to the incorporation, conduct, and supervision of banks and trust com- panies ? " Reserves are discussed at length. NoYEs, Alexander D. The Trust Companies; Is there Danger in the System? Political Science Quarterly. June, 1901. Vol XVI, p. 248- 261. Shows that the framers of the New Yerk banking law intended to give "trustee" powers to the trust companies, and that banking powers, while not prohibited, were not specifically given. The assumption of banking powers by these companies without tfie restrictions as to reserves required of state and national banks is shown to be a danger in the s,ystem. Ferine, Edward T. American Trust Companies. Their growth and pres- ent wealth. Address before the Trust Company Section, American Bankers' Association. New York, 1909. 73 p. Perine, Edward T. Statement of the Growth at^d Present Status of Trust Companies in the United States. Address before the Trust Company Section, American Bankers' Association. New York, 1905. 71 p. Perine, Edward T. The Story of the Trust Companies. N. Y., Putnam, 1916. xvii, 327 p. Bibliography, p. 308-312. Philadelphia Chapter, American Institute of Banking. A series of lec- tures delivered in a course on Trust Companies conducted by. Phila- delphia, 1915. 114 p. Preston, W. A. £tude sur les Trusts et Trustees. Paris 1904. 138 p. Troiseme Partie — Les Trust Companies aux £tats-Unis. p. 115-130. RiDGELY, Hon. Wiluam Barrett. Government Control of Banks and Trust Companies. Annals of the American Academy of Political and Social Science, July, 1904. Vol. XXIV, p. 15-26. A discussion of gov- ernment and state control, growth, reserves and the relation of banks and trust companies. Sam MIS, L. Walter. The Relation of Trust Companies to Industrial Combinations as illustrated by the United States Shipbuilding Com- pany, Annals of the American Academy of Political and Social Science, July, 1904. Vol. XXIV, p. 239-270. A short history of the promotion of the United States Shipbuilding Company and the failure of the Trust Company of the Republic resulting from the collapse of the Shipbuilding Company. ScHAFFNER, Margaret A, Taxation of Trust Companies. Wisconsin Free Library Commission. Legislative Reference Department. Comparative Legislative Bulletin No. 7. Madison, Wisconsin, 1906. 19 p. Bibliog- raphy, p. 3-4. Schaffner, Margaret A. Trust Company Reserves. Wisconsin Free Li- brary Commission. Legislative Reference Department. Comparative BIBLIOGRAPHY 517 Legislative Bulletin No, 6. Madison, Wisconsin, igo6. 24 p. Bibliog- raphy, p. 3-4. Reprints of the above bulletins in "Government," Boston, 1907. Vol. I, p. 46-52. Sears, John H. Trust Company Law. Chicafeo, Flood, 1917. 610 p. A valuable book of reference for trust officers. State Banking Laws. The statutes of almost all the states and territories provide for the incorporation of trust companies and define their scope and functions. The earliest trust companies were incorporated under special acts. Copies of state laws can usually be obtained from the State Banking Department, or the Secretary of State. Stevenson, Charles W. The Trust Company, I-VI. Rand McNally Bankers' Monthly. March-October, 1903. Vnl XXV, p. 151-156, 237- 242; Vol. XXVI, 10-15, 190-197, 276-285. I. Origin, growth, and char- acter. II. Its patrons and general business. III. A factor in industrial progress. IV. As a conservator of labor and prosperity. V. Relation to insurance and banking. VI. Successful management and place in affairs. Stubbe, a. Organisation des Amerikanischen Bankwesens. Ill Die Trustgesellschaften. Schmoller's Jahrbuch fiir Gesetzgebung, Verwal- tung und Volkswirthschaft. 1907. p. 1249-1260. United States. Federal Reserve Board. Index-Digest of the Federal Reserve Act and Amendments. Washington, D. C, Govt. Ptg. Office, 2nd edition 1918. 656 p. United States. National Monetary Commission. See Barnett, G. E. Welldon, S, A. United States. Revised Statutes. The National Bank Act. Laws gov- erning the organization and business of Trust Companies in the District of Columbia. (See Appendix, p. 461.) Walker, Guy Morrison. Trust Companies. A study of the nature of their business and the source of their great earning power. Boston, 1903. 18 p. Welldon, S. A., Compiler. Digest of State Banking Statutes. United States National Monetary Commission, 6ist Congress, 2d Session. Senate Document No. 353. Washington, 1910. 746 p. Digest divided into banks, savings banks, and trust companies. Valuable tabular sum- mary for each class of institutions. White, Horace. Trust Companies and the Clearing House. The Nation. New York, February 12, 1903. Vol. LXXVI, p. 126. The relation of the trust companies and banks, and action of the New York Clearing House as to trust company reserves. Williams, H. D. Trust Company Audits and Examinations. Journal of Accountancy, 1912. Vol. XIV. September, p. 211-216; October, p. 304- 309; November, p. 389-400; December, p. 446-465. Young, George W. Trust Company Reserves. The North American Re- view. February, 1906. Vol. CLXXXII, p. 265-297. A defence of exist- ing laws in the State of New York, and argument against the need for additional reserves. Sl8 BIBLIOGRAPHY References to Related StJBjECrs Agger, Eugene E. Organized Banking. New York, Holt, 1918. ix, 385 p. Alcorn, E. G. The Duties and Liabilities of Bank Directors. Third edi- tion, revised. Indianapolis, U. S. Bank Note Co., 1916. 167 p. American Bankers' Association. Savings Bank Section. Forms for Sav- ings Banks and savings departments in commercial banks and trust companies. New York, American Bankers' Asso., 1914. 119 p. Annals of the American Academy of Political and Social Science. Bank- ing problems. Vol. XXXVI. No. 3. November, 1910. 219 p. Contains sixteen articles by well-known financiers and economists on contemporary banking problems. Annals of the American Academy of Political and Social Science. Ameri- ca's Changing Investment Market. Vol. LXVIII. November, 1916. ix, 320 p. Articles on the theory of foreign investments, international in- vestments before, during and after the war. Annals of the American Academy of Political and Social Science. Bonds and the Bond Market. Vol. LXXXVIII. -iNo. 177. March, 1920. v, 223 p. Babson, Roger W. Bonds & Stocks. The elements of successful investing. Wellesley Hills, Babson Statistical Organization. 1914. 426 p. Babson, Roger W. Business Barometers used in the accumulation of Money. A text book on applied economics for merchants, bankers and investors. Eleventh edition. Wellesley Hills, Babson Statistical Organi- zation, 1918. 43S p. Bagehot, Walter, Lombard Street, a Description of the Money Market. 1873. New edition with introduction by, Hartley Withers. London, Smith, Elder, 1912. "After forty years a classic of which no one who wishes to understand the subject can afford to be ignorant." Bancroft, Hugh. Inheritance Taxes for Investors. Some practical notes on the inheritance tax laws of each of the states of the United States, with particular reference to their application, to non-resident investors. Second edition, revised. Boston, Houghton, Mifflin, 1917. 133 p. Bendix, Ludwig. The Aldrich Plan in the Light of Modern Banking. New York, 1912. xiv, 227 p. An enlarged English edition of " Der Aldrich Plan; seine Bedeutung fiir das amerikanische Bankwesen und den internationalen Geldmarkt." Birrell, Augustine. The Duties and Liabilities of Trustees. Six lectures delivered in the Inner Temple during the Hilary Sittings, 1896, at the request of the Council of Legal Education. London, 1897. 183 p. Brooks, Howard K. Foreign Exchange Text Book. An elementary treat- ise on foreign exchange and the monetary systems of the world. Chicago, Foreign Exch. Pub. Co., 1906. 240 p. Cannon, James G. Clearing Houses. Their History, Methods, and Ad- ministration. New York, igoo. 383 p. Also reprinted as a report to the National Monetary Commission, Senate Document No. 491. 61 st Congress, 2d Session. Washington, D. C. 1910. 335 p. BIBLIOGRAPHY 519 Chamberlain, Lawrence. The Principles of Bond Investment. 7th ed. New York, Henry Holt, 1917. xiii, 551 p. Chamberlain, Lawrence. The Work of the tiond House. New York, Moody's Mag. Co., 1912. 157 p. Clay, Paul. Sound Investing. New York, Moody, 1916. 376 p. Cleveland, Frederick A. Funds and their Uses. Revised edition. New York, Appleton, 1903. 314 p. A book describing the methods, instru- ments, and institutions employed in modern financial transactions. Conant, Charles A. The Principles of Banking. Being the second part separately issued of "The Principles of Money and Banking." New York, 1908. viii, 488 p. Gushing, Harry A. Voting Trusts: A Chapter in Recent Corporate His- tory. New York, Macmillan, 1915, 226 p. Dickinson, AHTHxra Lowes. Accounting Practice and Procedure. New York, Ronald, 1914. xi, 315 p. EscHER, Franklin T. Foreign Exchange Explained. New York, Mac- millan, 1917. xii, 219 p. Escher, Franklin T. Practical Investing. Second edition. New York, Bankers Pub. Co., 1916. 177 p. , Fisher, Irving. The Nature of Capital and Income. New York, Mac- millan, igo6. xxi, 427 p. GowiN, Enoch Barton. The Selection and Training of the Business Executive. New York, Macmillan, 1918. xii, 225 p. Greene, Thomas L. Corporation Finance. A Study of the Principles and .Methods of the Management of the Finances of Corporations in the United States; with Special Reference to the Valuation of Corporation Securities. Third edition. New York, Putnam, 1914. 181 p. Hanhart, William. Savings Banks, Trust Accounts in. Transactions Savings Bank Section, American Bankers' Association, 1903, p. 16-23. Considers: Accounts opened by one person for another, or in trust for another; joint accounts; alternative joint accounts; accounts of admin- istrators, executors, guardians, etc. ; accounts payable in a given event, or subject to special conditions or limitations; society or corporation accounts. Harris, Virgil M. Ancient, curious and famous wills. Boston, Little, Brown, 1911. xiii, 472 p. Hill, Frederick Trevor. The Care of Estates. Practical questions and plain answers concerning the everyday duties, rights and liabilities of executors, administrators, trustees, and guardians, with some suggestions ior legatees and testators. New York, Bakec, Voorhis, 1901. 176 p. Holcombe, H. R. Accounting Methods in the Savings Fund Department of a Trust Company. Business Man's Magazine, Detroit, 1905. Vol. XVIII. p. 851-858. Holmes, George E. Federal Income and Profit Taxes. Chicago, Calla- ghan & Co., 19 19. iv, 963 p. Howes, Edwin A., Jr. The American Law Relating to Income and Prin- cipaL Boston, Little, Brown. 1905. xviii, 104 p. Presents in concise form and explains the rules of law under which trustees and life tenants 520 BIBLIOGRAPHY should act in separating the returns from investments into income and principal. HuDDEEs, E. R. Indexing and Filing. New York, Ronald, 1916. xii, 292 p. Describes clearly and concisely the various |orms of filing systems. Indianapolis Convention, Report of the Monetary Commission of. George F. Edmunds, Chairman. University of Chicago Press, 1898. XV, 608 p. Kemmekee, Edwin W. The A. B. C. of the Federal Reserve System. Why the federal reserve system was called into being, the main features of its organization and how it works. Princeton, N. J., Princeton Uni- versity Press, 1918. xiii, 182 p. Kem MERER, Edwin W. Postal Savings: an historical and critical study of the Postal Savings Bank System of the United States. Princeton University Press, 1917. viii, 176 p. King, Willford Isbell. The Wealth and Income of the People of the United States. New York, Macmillan, 1917. xxiv, 278 p. Kniffen, William H., Jr. The Practical Work of a Bank. New York, Bankers' Pub. Co., 1915. vii, 621 p. Kniffen, Willliam H., Jr. The Savings Bank and its Practical Work. A practical treatise on Savings Banking, covering the history, manage- ment, and methods of operation of mutual savings banks, and adapted to savings departments in banks of discount and trust companies. New York, Bankers' Pub. Co., 1912. vi, 551 p. Lilly, William. Individual and Corporation Mortgages. Chicago, In- vestment Bankers Asso. of America, 1918. 153 p. LoRiNG, Augustus Peabody. A Trustee's Handbook. Third edition. Bos- ton, Little, Brown. 1907. 224 p. States simply and concisely the rules which govern the management of trust estates, and the relationship be- tween the trustee and beneficiary. LowENFELD, H. The Investment of Trust Fimds in the Safest and Most Productive Manner. London, 1908. vii, 87 p. LowNHAUFT, Frederick. Investment Bonds, their Issue and their Place in Finance. A book for students, investors, and practical financiers. New York, Putnam, 1918. x, 253 p. Lyon, Hastings. Corporation Finance. Boston, Houghton, MifHin, 1916. vii, 316 p. MacGreoor, T. D. The New Business Department, its organization and operation in a modern bank. New York, Bankers' Pub. Co., 1917. 94 p. Madden, J. T. Fiduciary Accounting. Brooklyn, W. G. Hewitt Press, 1913. IIS P- Maraspin, F. L. & Driver, H. B. Fundamental Principles of Stock Trans- fers. Boston, Boston Chapter Amer. Inst. Of Banking, 1917. 87 p. Margraff, Anthony W. International Exchange. Its terms, parts, opera- tions, and scope. A practical work on the foreign banking department and its administration by American Bankers. Second edition. Chicago, 1904. 299 P- McKinney, Frank C. Liabilities of Trustees for Investments. General BIBLIOGRAPHY 521 principles, statutes and decisions of the various states, typical list of investments legal in Conn., Mass., Md. &• N. Y. Rochester, N. Y., Lawyers' Coop. Pub. Co., 1914- 324 P. Mead, Edward Sherwood. The Careful Inv^tor. Philadelphia, Lippin- cott, 1 914. 290 p. Mead, Edward Sherwood. Corporation Finance. New York, Appleton, 1912. xiv, 478 p. Montgomery, Robert H. Auditing; Theory and Practice. Second edition, revised and enlarged. New York, Ronald, 1916. xxvi, 889 p. Montgomery, Robert H'. Income Tax Procedure 1920. New York, Ron- ald, 1920. 1282 p. Moody, John. How to analyze Railroad Reports. New York, 1916. 218 p. Outlines the principles on which " Moody's Analyses of Railroad In- vestments " have been built up. Morehouse, W. R. Bank Deposit Building. Practical and proved methods of increasing your business and holding it. New York, Bankers' Pub. Co., 1918. 254 p. Mortimer, Frank C. The Investment of Trust Funds. San Francisco, 1909. 46 p. Nelson, Godfrey N. Income Tax, Law and Accounting. New York, Mac- millan, 1918. xxiv, 364 p. with supplement. New York Financier. Foreign Exchange. An elementary treatise de- signed for the use of the banker, the business man, and the student. Reprinted from a series of articles published in the New York Financier. New York, The Financier Co., 1902. 184 p. Pratt, Sereno S. The Work of Wall Street. An account of the Functions, Methods, and History of the New York Money and Stock Markets. New York, Appleton, 1912. xii, 440 p. Rae, George (born 1817). The Country Bailker. N. Y., Scribner, and Rochester, Lawyers' Coop. Pub. Co. Raymond, William L. American and Foreign Investment Bonds, Bos- ton, Houghton, Mifflin, 1916. x, 324 p. Rollins, Montgomery. The Banker at the Boarding House. Boston, Lothrop, Lee & Shepard, 1918. 416 p. An attempt to put the principles of investment into popular form. Rollins, Montgomery. Money and Investments. A reference book for the use of those desiring information in the handling of money or the in- vestment thereof. 4th edition. Boston, Financial Pub. Co., I9i7- ^xiv, 494 p. A dictionary of financial terms and phrases. Scientific Management. Those interested in problems of organization and management will find suggestive material iii many of the books on the general subject of scientific management and efficiency. Some Legal Phases of Corporate Financing, Reorganization and Regu- gulation. Being a number of addresses delivered by especially qualified lawyers at the instance of the Association of the Bar of the City of New York, to audiences drawn from the practicing lawyers of New York City. Macmillan, New York, 1917. ix, 389 p. Includes chapters on " Preparation of Corporate Bonds, Mortgages, Collateral Trusts and De- 522 BIBLIOGRAPHY bentures" by Francis Lynde Stetson; "Foreclasure of Railroad Mort- gages " by James Byrne ; and " Reorganization of Corporations " by Paul D. Cravath. Sfkague, Chahles Ezra. The Accountancy of =Investinent, with which are incorporated " Logarithms to 12 places and their use in interest calcu- lations " and " Amortization '' by the same author. Revised by Leroy L. Perrine. New York, Ronald, 1914. 371 p. Thralls, Jerome. The Clearing House. Ne* York, American Bankers' Asso., Clearing House Section, 1916. x, 79 p. Todd, John A. The Mechanism of Exchange. A handbook of currency, banking and trade in peace and war. London, and New York, Oxford University Press, 1917. xiv, 255 p. United States. Alien Property Custodian Report. A detailed report by the Alien Property Custodian, Hon. A. Mitchell Palmer, of all proceed- ings had by him under the Trading with the Enemy Act during the cal- endar year 1918 and to the close of business on February 15, 1919. Wash- ington, Gov't. Ptg. Office, 1919. 607 p. United States. Federal Reserve Board. Approved methods for the pre- paration of balance sheet statements. Reprinted from Federal Reserve Bulletin, April, 1917. Washington, Gov't. Ptg. Office, 1918. 25 p. United States. National Monetary Commission. See Cannon, J. G. ViELE, Dorr, and Baecher, Joseph C The Land Title Registration Act of the State of New York, indexed. (The American Torrens System.) Second edition. Albany, N. Y., Bender, 1916. 87 p. WnrrE, Horace. Money and Banking. Illustrated by American History. Fifth edition. Boston, Ginn, 1914. xiv, 541 p. Whitely, J. L. The Law of Bills, Notes and Checks, being the full text of the negotiable instruments law as adopted by forty-four states, the District of Columbia, and Hawaii. Rochesler, N. Y., Nat. Law Book Co., 1917. 401 p. Willis, Henry Parker. American Banking. Chicago, La Salle Ext. Univ., 1916. xi, 361 p. Willis, Henry Parker. History of the Latin Monetary Union. Univ. of Chicago, 1901. Willis, Henry Parker. What the Federal Reserve System has done. American Economic Review, June, 1917. Vol. VII, No. 2, p. 269-288. Willis, Henry Parker. First Year of the New Banking System. Politi- cal Science Quarterly, Dec, 1915. Vol. XXX, p. 591-617. Willis, Henry Parker. The Federal Reserve Act; its legislative history, origin and significance. American Economic Review, March, 1914. Vol. IV, No. 1, p. 1-24. WiLus, Henry Parker. The Federal Reserve. New York, Doubleday, Page. 1915. xii, 342 p. Willis, Henry Parker, Chairman. Report to the Reserve Bank Organi- zation Committee, by the Preliminary Committee on Organization. Private print, 1914. 224 p. BIBLIOGRAPHY 523 WiTHEESj Hartley. International Finance. New York, Dutton, 1916. vjii, 184 p. Withers, Hartley. The Meaning of Money. New York, Dutton, 1916. xiv, 306 p. Withers, Hartley. Money Changing. An introduction to foreign ex- change. New York, Dutton, 1914. viii, 183 p. Withers, Hartley. Stocks and Shares. New York, Dutton 1917. xi, 371 p. A series of popular books by the editor of " The Economist," London. Wolff, Henry W. Cooperative Banking. Its principles and practice with a chapter on cooperative mortgage credit. London, 1907. 301 p. Wolff, Henry W. Peoples Banks. Fourth edition, revised. London, 1920. xiv, 587 p. Trust Companies and their Equivalents in Other Countries Phillips, Charles Francis. The Business in Foreign Countries analogous to that of Trust Companies in the United States. American Bankers' Association, Trust Company Section, 1901. Bankers' Magazine. Novem- ber, 1901. Vol LXIII, p. 844-848. Australia Australia, Official Year Book. Gives statistics of trustee, executor and agency companies. Year Book for 1914, p.; 746, gives statistics for igoi-13. Australia, Commonwealth of. Trading with the Enemy Act, 1914-1916. The War Precautions Regulations, 1916. Treaty of Peace Regulations, 1920. Melbourne, Victoria. New South Wales. Public Trustee Act. No. ig, 1913. Regulations, Jan. I, 1914. Annual Reports of Public Trust Office, 191S to date. Sydney, N. S. W. Queensland. The Public Curator Office, State Guarantee. Brisbane, Queens- land, 1920. 45 p. This office was established Jan. i, 1916. Tasmania. Public Trust Office Act, No. 26, 1912. Amendment, No. 38, 1919. Regulations, 1913. Annual Reports. Hobart, Tasmania. Nesbitt, Robert C. Trustee Companies. The Law Society, London. Pro- ceedings of the Twenty-ninth Provincial ^Meeting. 1903. p. 234-264. A description of the Trustee Companies of Australia, the Public Trust Of- fice of New Zealand, and the position in England of companies or individuals somewhat analogous to these. Canada Canada, Statutes of. Ottawa, 1914- Trust Companies Act of 1914, 4-5 George V. Ch. 55, pp. 37S-404- The Canada Year Book. Ottawa, Dominion Bureau of Statistics. Gives statement of assets and liabilities of trust companies incorporated under act of 1914- Germany Statut der Deutschen Treuhandgesellschaft, 1901. Berlin, 1907. ,23 p. Deutsche Treuhandgesellschaft (Circular.) Berlin, 1908. 7 p. 524 BIBLIOGRAPHY Hecht, F. Die Deutsche Treuhandgesellschaft. Schr. d. Ver. f. Sozial- politik, Bd. CXI, p. 103-112. LiEFMANN, R. Beteiligungs und Finan^ierungsgesellschaften. Eine Studie iiber den modernen Kapitalismus urid das EflFektenwesen. Jena, 1913, xiv, 626 p. 2 ed. Bibliography, p. xiii-xiv. LiEFMANN, R. Treiihandgesellschaften. Handworterbuch der Staatswissen- schaften. Jena, 191 1. Vol. VII. p. 1263-1265. Bibliography. Nachod, W. Treuhander und Treuhandgesellschaften in Grossbritanien, Amerika und Deutschland. Tubingen, 190k' Erganzungsheft zur Zeit- schrift f. d. ges. Staatswissenschaft. RosENDORFF, RicHABD. Treuhandgesellschaftcn und ihre Funktionen. Jahrbucher fiir Nationalokonomie und Statistik. May, 1906. 3d Series, Vol. XXXI, p. 604-621. Discussion of the organization of trust com- panies on the continent. Warschauer, O. Die Treuhandgesellschraft und die Aufsichtsratsfrage in Deutschland. Jahrbiicher fiir Nationalokonomie u. Statistik. April, 1908. Great Britain Great Britain. Public Trustee. Act of igo6. 6 Edward VII. Ch. 55. General Reports by the Public Trustee. London. H. M. Stationery Office. Published annually 1909 to date. Summaries of these reports may be found in The Economist, London. Great Britain. Interim Report, and Final Report of the Committee appointed by the Lord Chancellor to enquire into the organiza- tion of the Office of the Public Trustee. London, H. M. Stationery Office, 1919. 4 p. and 19 p. Great Britain. " Trustee Act, 1893 " (56 & 57 Vict., ch. 53) and " Colonial Stock Act, 1900" (63 & 64 Vict, ch. 62) are the principal acts dealing with securities in which trustees may invest. Lloyds Bank, Limited. Memorandum of Articles of Association. Filed August 4, 191 1. The London Joint Stock Bank, Limited. Memorandum of Articles of Association adopted 1901. Special resolution, August 13, 1909. Both of the above are instances of banks which have undertaken trust functions. Allen, E. K. The Public Trustee. Nineteenth Century. Vol. LXIII. February, 1908. p. 297-304. An account of the creation of the office of Public Trustee and of its functions and business. Allen, E. K. A Year With the Public Trustee. Nineteenth Century. Vol. LXV. March, 1909. p. 41I-418. An account of the creation of the office of Public Trustee and of the business transacted during the first year of its existence, by an officer of the department. Allen, E. K. Stress of war emphasizes value of trust administration in England. Trust Companies, August, 1917, p. 129-131. GoLDSBOROUGH, W. L. The Public Trustee of England. Green Bag, Boston, 1913. Vol. XXV, p. 222-225. Nesbitt, Robert C. Trustee Companies. See Australia. Schooling, William. Some Comments on the f>ublic Trustee. Nineteenth BIBLIOGRAPHY 525 Century. Vol. LXIII. March, 1908. p. 465-475- An adverse criticism ■of the office of Public Trustee. Sharman, William Charles. Some Notes on the Establishment of the Office of Public Trustee in England. Institute of Actuaries Journal, London. 1910. Vol. XLIV, p. 306-345. Japan The Japan Year Book. Tokyo. Under "Banks and Banking Business" gives number of trust companies operating under Trust law of March 190S. Kato, Motoshi. Banking and Trust Company Methods in Japan. Trust Companies. June, igo8. Vol. VI, No. 6, p; 369-371. A short descrip- tion of the Japanese banking system and of the functions and growth of the Industrial Bank of Japan. Takaki, Masayoshi. Principles of a Trust Company. Kyobunkwan Pub- lishing Company, Tokio, Japan, 1907. 102 p. Mr. Takaki was author- ized by a Japanese bank, Dai-Ichi Ginko, Limited, Tokio, to investigate trust companies in the United States. His volume, in Japanese, contains a digest of " The Modern Trust Company." New Zealand New Zealand. Public Trust Of&ce Act, 1908. Public Trust Office Amend- ment Acts, 1912, 1913, 1917, 1919. Wellington, N. Z. Government Printer. New Zealand. Public Ttust Office. Annual reports — especially report for year ending March 31, 1918, by Robert Triggs, Public Trustee, which deals with office organization in detail. Wellington, N. Z. Government Printer. New Zealand. Public Trust Office, Hand-Book of the. Wellington, 1919. 25 P- New Zealand. Public Trust Office, Report of Commission appointed to inquire Into and report upon the working of the. By Alexander Macin- tosh & John Henry Hosking. Wellington, Government Printer, 1913. New Zealand Official Year Book. Gives statistics of estates managed, etc. Year Book for 1898, p. 454-462, gives a general account of the Public Trust Office. Year Book for 1914, p. 791-799, extracts from Public Trust Office Act of 1908, and an account of the powers and duties of the Public Trustee and the classes of business undertaken. Year Book, for 1917, p. 723-5, amendment passed in 191 7. New Zealand, Statistics of the Colony of, from 1903 to date. Part IV: Finance, Accumulation, and Production. Compiled in the Registrar- General's Office from official records. Wellington, N. Z. Contain statis- tics covering the business of the Public Trust Office. Lloyd, Henry Demarest. Newest England. New York, 1900. Chapter II, "Our Mutual Friend," p. 12-30, describes the functions, duties, and busi- ness of the public trustee in New Zealand. Nesbitt, Robert C. Trustee Companies. See Australia. LIST OF FORMS This list includes all forms referred to or described. In the supple- mentary lists are forms in general use, but not referred to in the text. (*Form reproduped) Membership in the Federal Reserve System ♦Resolution signifying intention to enter reserve system . . ♦Resolution applying for authority to exercise fiduciary powers Banking Department 42 48 Deposit slip Deposit slip for coupons . Pass book ^Receiving teller's daily settle- ment Record of collections . Collection maturity index . Pay-roll slip ♦Paying teller's daily settle- ment •■Certification stamp ♦Charge slip Stop payment order . Payment stopped sheet . Signature card ♦Record of deposit accounts opened ♦Record of deposit accounts; closed Individual depositors' ledger ♦Individual depositors' state- ment sheet ♦Individual depositors' daily balance and interest slip . ♦Interest table (one day @ 2%) Overdraft notice .... "Star" deposit slip . . . " Star " charge slip . . . 73 Check books 114 73 Vouchers and voucher checks 115 74 *Collateral note 122 ♦Loan accession book . . .125 76 ♦Demand loan ledger sheet . 125 'jj Interest bill 125 "J"; Notification of change in in- 81 terest rate 127 ♦Time loan ledger sheet . . 127 85 Bills receivable ledger sheet . 128 85 *Collateral record sheet . . 129 85 Collateral index .... 129 86 *Substitution of collateral slip 129 86 Loan envelope .... 132 104 ♦Investment ledger .... 138 Distribution of interest ac- 104 crued 139 Stock ledger 142 104 Stock certificate .... 142 106 Stock transfer book ... 142 Index of stockholders . . 142 106 Dividend list 143 ♦Dividend check .... 143 109 Index of contracts . . . 144 Order book 144 III ♦Special order book for check 114 books 144 114 Expense check 14S 114 Record of expenses . . . 146 527 528 LIST OF FORMS Voucher index 148 Petty cash receipts book . . 148 Petty cash payments book . 149 Salary list 149 Salary book 149 SUPPLEMENTARY FORMS Envelope enclosing coupons for deposit. Slip for deposits in out-of- town banks. Advice of receipt of deposit by mail. Advice of charge on deposits on account of error. Advice to banks of receipt of cash on collection items for deposit. Collection credit ticket sent to customers. Tracer form sent out on de- linquent items. Form for recalling notes sent for collection. Individual signature card kept by paying teller. Individual signature card kept by individual bookkeeper. Corporate signature card kept by paying teller. Corporate signature card kept by individual bookkeeper. Power to open an account for corporation. Power of attorney for a cor- poration. Power of attorney for indi- vidual or partnership. Individual ledger assortment sheet. Letter to accompany state- ment of accounts. Letter to accompany pass books. Slip fQr receipt from cus- tomers sent out with stateriients of pass books through the mail. Letter to follow slip for re- ceipt from customer when it has not been returned. File card showing receipt of statement by customer. Advice of special charge to an account. Quick return advice slip for inforijiation on checks re- ceived on deposit. Slip used on return items showing why returned. Application for collateral loan. Power of attorney for col- lateral. Hypothecation of collateral. Loan record charge slip. Loan record credit slip. Report tp executive commit- tee on new collateral loans. Report to executive commit- tee on closed out collateral loans. Partial delivery of collateral slip. Increase of collateral slip. Receipt for coupons taken from securities deposited as collateral. Petty cash slip. Application for indemnity bond. LIST OF FORMS 529 Making Use of the Federal Reserve System ♦List of paper for discount . 156 ment .... ♦Customers Acceptance agree- *Bankers acceptance 162 162 Credits and Credit Department Borrower's statement . . . 171 tion 179 ♦Corporation .... 176 *Commercial agency statement 179 Firm 176 *Average balance card . . 185 ♦Analysis of borrower's posi- Liability ledger .... 185 ♦Monthly expense ledger . ♦Earnings analysis sheet . . 208 ♦Accrual sheet 209 Operating Costs . 204 ♦Deposit analysis sheet ♦Account analysis sheet 209 215 Quotation index .... 220 ♦Monthly card .... 220 ♦Annual card .... 220 Record of statements (loose leaf book) 229 Statistical Department Chart records 230 ♦Consolidated income account 233 Analysis sheet (for trust accounts) 233 FisREiGN Banking ♦Ledger Sheet for foreign ac- counts 251 ♦Remittance advice and record 251 ♦Draft advice and record . .251 ♦Letter of credit .... 252 ♦Record of letters of credit is- sued or guaranteed . . . 252 Traveller's check . . . 253 ♦Letter of credit agreement . 254 ♦Liability ledger .... 255 ♦Record of exchange bought and sold 255 Corporate Record of corporation mort- gages : ♦Abstract sheet .... ♦Record of bonds received, certified and delivered . ♦Record of bonds paid, can- celled, and cremated, or returned Record of registered bonds is- sued in lieu of coupon bonds, and mce versa . Coupon envelope .... Trust Department 264 268 268 269 270 Petty cash book .... 270 Scratcher 270 Statement of coupons paid . 271 ♦Letter of advice and receipt for paid coupons Dividend list . Dividend check ♦Dividend notice ♦Stock register . Stock certificate ♦Power of attorney to transfer stoclj . 271 271 272 272 276 279 280 53° LIST OF FORMS ♦Power of substitution . ,281 ♦Stock transfer book . . . 281 Stock transfer book (alter- nate form) 283 Stock ledger 284 Stock transfer sheet . . . 285 Voting trust certificate . . 286 Temporary certificate of de- posit of securities . . . 288 Engraved certificate of de- posit of securities . . . 289 Reorganization record . . 290 Record" of corporate trusts . 293 Individual Trust Department Power of attorney Index of securities: ♦Security card . ♦Estate card ♦Receipt card Maturity index Portfolios for securities ♦Coupon bond label ♦Coupon collection sheet Coupon envelopes . . Coupon credit slip . Coupon credit book . Request for notice of calls . Record of interest in de- fault Application for mortgage loan ♦Appraisal of real estate Bond and mortgage . ♦Mortgage ledger . Mortgage charge slip . Mortgage bill and credit slip (principal) 320 Mortgage bill and credit slip (interest) 320 Mortgage scratcher . . . 321 Index of mortgagors and in- terest payers 321 Mortgage location index . . 322 Mortgage maturity index . 322 Lease 325 ♦Rent ledger 327 Index of properties . . . 329 Index of tenants .... 329 Index of expiration of leases 329 300 304 305 307 307 308 309 311 313 313 313 314 315 315 316 317 319 320 Record of properties rented and vacated 329 Rent bill and credit slip . . 329 ♦Inspection card .... 329 Agreement to buy and sell . 329 Memorandum of settlement . 331 Key envelope 331 Order for repairs .... 331 Bill for repairs .... 331 Insurance maturity book or index 332 Insurance, estate index . . 332 Insurance, location index . 332 Insurance, line index . . . 333 Policy envelope .... 333 Insurance slip 333 Insurance expiration notice . 333 Trust credit slip . . . • 334 Receiving teller's settlement . 335 Disbursement index . . . 336 Trust charge slip .... 336 ♦Trust check 338 Daily settlement of trust dis- bursements 338 ♦Record qi trust securities re- ceived 338 ♦Record of trust securities de- livered 339 Record of individual trusts: ♦Abstract 340 ♦Coupon bonds .... 340 ♦Stocks 340 ♦Notes and miscellaneous securities .... 341 ♦Registered loans . . .341 LIST OF FORMS S3I ♦Mortgages 341 *Real estate 341 Estate index 348 Will book 348 ♦Individual trust ledger . . 348 Individual trust scratcher- . 350 Individual trust daily balance and interest slip .... 350 Trust general ledger . . .351 Trust general cash book . . 354 Trust general journal . . . 354 Trust comparative daily bal- ance sheet 354 Trust comparative monthly balance sheet .... 355 Monthly statement of trust accounts opened and closed 355 ♦Record of fees and commis- sions ....... 358 Investments Index of trust balances for investment . ♦Promissory note . ♦Draft or bill of exchange ♦Trade acceptance . Commodity paper . 378 Commercial Paper . 382 ♦Banker's acceptance . . . 382 382 ♦Bills discounted and pur- 382 chased register .... 386 382 *Jenks Wir 391 Safe Deposit Department ♦Receipt for safe rent . . . 401 ♦Receipt and identification card — safe 402 ♦Appointment and identifica- tion of deputy .... 405 Rent ledger card .... 405 Bill for safe rent .... 405 Credit slip for safe rent . . 406 Charge slip for refunding rent 406 ♦Corporate resolution giving , access to an individual . . 406 Corporate certificate of elec- tion of officers .... 407 ♦Certificate of deposit of valu- ables ♦Receipt and identification card — valuables Appointment and identifica- tion of deputy . Ledger card .... Bill for deposit of valuables Credit klip for payments for deposit of valuables . Tag Delivery order for valuables Receipt for valuables . Record of visitors . ♦Cash and record book . ♦Comparative monthly report 407 407 408 409 409 409 409 410 410 410 410 412 supplementary forms Appointment and identifica- Power to break open safe de- tion of joint renter. posit box. Revoking jdSnt renter. Savings Fund Department Signature card: Depositor's index card . . ♦Individual 414 Authority for opening ac- joint 414 count for a corporation 414 414 532 LIST OF FORMS Authority for opening ac- count for an unincorpor- ated organization . . . 414 Savings deposit book . . .415 Savings deposit slip . . . 415 Receiving teller's daily proof 415 ♦Withdraviral notice . . *Withdravsfal slip Paying* teller's daily proof *Ledger Sheet .... Block control ledger sheet General Accounting General ledger 424 General cash book . . . .431 General journal . . . .431 Daily trial balance . . .431 ♦Comparative daily balance 415 41S 416 417 418 sheet' 432 Comparative monthly balance sheet 432 Monthly balance sheet . . 432 Daily cash report .... 432 SUPPLEMENTARY FORMS General charge slip. General credit slip. Auditor's record card for col- lateral loans, stocks and bonds held by the company. Auditor's reconcilement form to be sent out on active ac- counts. Auditor's reconcilement form to be sent out on inactive accounts. Certification of depositor's balance on specified date. Register of incoming mail Vertical letter file . Correspondence or Mail Room 441 Finding index 442 Office Building Record of persons entering and leaving building Purchase and Care of Supplies ♦Inventory and schedule of an- Stock record card nual order of supplies . . 455 Sample book Record of supplies received . 455 Index of forms Requisition for supplies . . 457 442 452 4S7 457 457 INDEX Abstract sheet — corporate trusts, 293; corporation mortgages, 264- 268; individual trusts, 339-340; registrar, 275; transfer agent, 284. Acceptances, bankers, 161, 162, 382, 389-390; advantages of, 164; com- missions upon, 164; certain types highest liquid commercial asset, 396; customers agreement concern- ing, 162; finance bills passing for, 390; form of, 163; "gilt edged," 170; as investments, 37s; paper masquerading as, 390; rates for at New York Federal Reserve Bank, 161 ; renewable, 381 ; trust companies should not hold their own, 164; types of, 382-384- Acceptances, trade, 382. Access — to building, 451, 452; to safe deposit box, 399, 403-407; to trust securities, 302. Accession book — collection items, "JT, deposit accounts, 104; loans, 123, 125; trust securities, 301, 302, 307, 329, 338. Accession number, trust accounts, 293, 348. Accident liability insurance, 332. Accountant, certified public, examina- tion by, 439, 440. Accounting, 423-434; to beneficiaries, 349. 351 ; "cost," ig8; to court, 298, 300, 349, 351; foreign exchange, 251. Accounts — ^analysis of, 233; analysis sheet, 215; analysis trust, 283; of assignee, 292; Boston system, 105; corporate trust, 293; court, 114; income, consolidated, 233; deposit, closed, 104 ; deposit, new, 103 ; du- plicate systems, 105; examination and oversight of, by Federal Re- serve system, 434; general ledger, 425-430; inactive, 113; individual trust department, 348-351 ; opening, for corporation, authority for, 414; opening, for unincorporated organi- zation, 414; receivable, 426; of re- ceiver, 292. Accrual sheet, 209. Accrued — commissions, 208 ; inter- est on investments, 138-139; inter- est payable, 428, 430; interest re- ceivable, 427. Actuary, 59. Adding machine, 106, 415, 416. Addressing machine, 273. Adjudication of court, 297. Administrator, 10, 298. Advantages of trust company as trustee, s. Advertising, 141, 458-459; Hem in ex- pense account, 146; real estate, 324. Agency, commercial ^ Bradstreet's, 179, Dun's, 179; form of credit statement to, 180; reports of, 179. Agency — cooperative, 182 ; foreign, 258. Agent, II, 300; commissions of, 359; for corporations, 292 ; Federal Re- serve, 151 ; fiscal, 9, 269-274 ; for real estate, 323 ; foreign, 247 ; trans- fer, 66; 277, 286; commissions for, 294; duties of, concerning transfer and bond taxes, 286. Agent bank — clearing ckecks through, 95. Agreement for sale of real estate, 329-33q Alien Property Custodian, 15 ; Bureau of Trusts under, 16;' British, 18; reports of enemy property to, 15. American Bankers Association, sched- ule of compensation, 355. Amortization of premium, 365. Analysis ^- account sheet, 215; of borrower's position, 170, 178; cost, of banking department, 198-216; of deposit sheet, 209; of earnings sheet, 208; of securities, 225-233; of trusf accounts, 233, 283. Annuities, 13, 336, 419. 533 534 INDEX Appendix, 461-508. Applications — for mortgages, 316, 444 ; for positions, 444. Appointment and identification of deputy, card, 405, 408. Appointments, made by President, 6i, Appraisal of real estate, 315-316. Arbitration of exchange, 246. Assessments on securities deposited, 290. Assets — -general ledger, 425; separa- tion of trust from company's, 5, 295- Assignee, 11-12, 291-292, 294, 301. Assignment — deed of, 291 ; of mort- gage, 317. Attorney, 11, 300, 357, 359; power of, 123, 280-281, 300. Audit, 248, 433-439; by court, 298, 300, 338; of depositors' ledger, 108; of rent ledger, 328-329. Auditor, 423-424. Australia — land transfer acts, 326; trustee companies in, 7. Average balance card, 185. Balance — card, average, 185 ; loan- able, process of ascertaining, 209; trade, 241 ; trial, 425, 431 ; trial, of individual trusts, 350; trial, of sav- ings fund department, 415, 416. Balance and interest slip — individual depositor's, 108-110; individual trusts, 3S0. Balance sheet, 293, 425 ; comparative, 354. 431 ; expenses included in daily, 147; monthly, 432; trust general ledger, 353. Balances — for investment, 378 ; rec- ord of, 378; at Federal Reserve Bank, 164. Bank — agent, for clearing checks, 95 ; of England, 133 ; exchanges, 83 ; tendency to composite type of, with trust company, 168. Bank, Federal Reserve — clearing checks through, 87-95 ; dividends of, 45 ; new money from, 81 ; notes of, 81 ; redemption of notes, 81 ; re- serve account of members, 45; sub- scription to stock of, 44. See also Federal Reserve Banks, Federal Reserve system. Bankers' acceptances, 161, 162, 382, 389-390- Bankers'. Association of California, schedule of charges, 472-479. Banking- — commissioner of, 426; costs and analysis of, 201-216; forms, list of, 527-532; forms, sup- plementary, 528-532; functions of trust companies, 7; house, furni- ture and fixtures, general ledger ac- count, 427 ; by mail, y^. Banking department, 71-150; organi- zation of, 71 ; relation of to com- mercial paper, 379. Banking, foreign, 239-258; contrasted with domestic, 240; controlling, 258; tfature of, 239; organising, 241 ; special services, 248. Banks, National — competing with trust companies, 87; controlled by trust companies, 52 ; permitted fidu- ciary powers, 3-4, by Federal Re- serve Act, 13, 47, 167; tendency to form composite type with trust compaiiy, 168. Banks and bankers, due to, general ledger account, 427. Beneficiaries of trust estates, 299; accounting to, 349, 351; consulting with, about investments, 377. Bibliography, 511-525. Bill — deposit of valuables, 409 ; ex- penses, 145; foreign, 244; Jenks', 391-396;. interest on loans, 125'; mortgage interest and principal, 318, 3^; rent, 325, 329; fent of safe, 217; repairs, 331. Bill of exchange — draft of, 382; types of, 382-384; British, 381. Bills — discounted and purchased, register of, 386; receivable, 119; general ledger account, 235 ;• ledger sheet, 1-28-129. " Black lijts," war, 236. Block coijtrol clerk, 418. " Blue sky laws," 365. Board of Directors, 32-36; attesta- tions by, 3S; chairman of, 54; com- mittees of, 33; fees, 35; minutes, 65; number, 33; of Federal Reserve Bank, 151; under Clayton Act, 36; vacancies, 34. Boiler insurance, 331. Bond — department, 140, 376, assist- INDEX 535 ance of in investing, 377; issue, se- cured by mortgage, 426, 427, 429; and mortgage, form of, 317 ; sales to trust accounts, 376; salesmen, 377. Bonds — analysis and basic informa- tion concerning, 225-233; camou- flaged, 381 ; cancellation of, 263 ; care of, 301-303, 308-310; certified by trustee, 261-262; coupon, ar- rangement of, 308-309; county, city and district, as investments, 372; coupon and registered, interchange- able, 269; cremation of, 263, 268; certification of, 263 ; delivered, 261 ; due or called, 78, 314; fidelity, 420, 448 ; foreign government, 371 ; gen- eral ledger account of, 426; index of coupon, 304-30S ; index of reg- istered, 305 ; industrial, state, public service, and railroad, as invest- ments, 373-374; label, for coupon, 310; Liberty, 371-372; mortgage to secure, 260, 426; original issue, taxes upon, 286; ownership certifi- cates for coupons of certain, 270; record of paid, cancelled and cre- mated, or returned, 268; record of received, certified and delivered, 268; registered, 301; rules for de- livery and for listing. New York Stock Exchange, 480-511; signing, 261 ; sinking fund, ^/n '> shrinkage in value, 367; statistics, 225; state, as investments, 372 ; subject to re- demption, 271 ; surety, required of trustees, etc , 4, 257, 299 ; taxation of, 196; transfer of registered, 285. Bonds, United States, 371-372; best of all investments, 371 ; borrowing upon at Federal Reserve Banks, iS3j 159. 161 ; paper secured by, eli- gible for rediscount, 153; taxation of, 193-196. Book — coupon bonds, 140, 309; de- posit, 415 ; value of building and fixtures, 452. Bookkeeper — general ledger, 432 ; in- dividual depositors, 105 ; savings department, 415, 418; trust depart- ment, 334- Borrowers — position, analysis of, 170, 178-179; statement, I73-I7S- Boston system of ledger accounts, 105. Branch offices, 27; foreign, 239, 258. Brief of title, 317. British — Bill of Exchange Act, 381- 382; oonsols, 374. Building, 451-453; maintenance of, 147 ; record of persons entering and leaving, 452. Bureau 6f Trusts, 16. Burglary insurance, 331-332. Burial lot funds, 326. By-laws, 27, 65. Cable transfer, 248. California — Bankers' Association, schedule of charges, 472-479; gen- eral corporation law, 25; standard- ized compensation in, 355. Call loans, 119. Called bonds, 314. Cambist, ,246. Cancellation — of bonds by trustee, 263; of checks, 108. Cancelled — certificates, 282 ; coupons, letter of advice and receipt for, 271. Cancelling machine, 108. Capital, 20 ; " goods," 249 ; nature of, 360-362; stock, 28; stock, general ledger account, 429; minimum re- quired, 22. Car trust, 263. Card — index, see Index; signature, 104 Cash — errors in, 82, 429 ; general led- ger account, 425; petty, for pV- ment of coupons, 270; petty, pay- ments, 148 ; petty, receipts, 148, 412, 431 ; receipts, safe deposit depart- ment, 401; report, 432; trust gen- eral ledger, 321-3S2; uninvested trust, 296, 335, 338, 349, 350, 352. Cashbook ^- corporate trusts, 293 ; general, 431; individual trusts, 339; petty payments, 148; petty receipts, 148; and record, safe deposit de- partment, 410; trust general, 321- 354- Certificates — of appointment of ex- ecutor, 298; cancelled, 282; of de- posit, 75, 84, 428; of deposit of se- curities, 289-290; of deposit of val- uables, 407, 412; of "no defence" 536 INDEX or "no set-off," 316; receivers', 292; required for coupons, 270; stock, 276, 279; stock trust, 286. Certificates of Indebtedness, U. S., 375 ! rates of discount at New York Federal Reserve Bank, 161. Certification — of bonds, 261, 294 ; stamp, 8S; by signograph, 261. Certified checks, 83-84; general led- ger account, 429. Certified public accountant, 438; in- ducing customers to employ, 172. Charge slips, 86; certified checks, 85- 86; mortgages purchased, 320; safe deposit department, 406, 412; "star" entries, 114; trust depart- ment, 336, 350. Charges, 336, 355-359- Charities, trusts for, 300. Chart, record, 230. Charter, 20-24. Check books, 114, i43-i44. Checks — altered or forged, 86-87, in- surance against, 87; analysis of costs of " country," 213 ; cancelled, 108; certified, 85-86, 428; clearing, 87, for non-members of clearing house, 9S, 98, at Chicago, 97, at New York, 96; clearing through agent bank, 95 ; through Federal Reserve system, go-94; trust company, 87- 103 ; collection, by Federal Reserve Banks, 164-165; counter, 115; divi- dend, 143, 172; for expenses pay- able, 14s ; indorsement of, 83-93 ; local collection, non-clearing house items, loi ; lost, 86 ; mechanical pro- tectors for, 86; order book for, 144; over counter, 83; payment of, 83; posted, 108; for repairs, 331; salary, 149 ; " stop payment " of, 86; travellers, 253; trust, 336, 338; voucher, 115'. Chicago Clearing House, 97. Chittenden, signing of Treasury bonds by, 261. " Claflin paper," 381. Cleaners, 450. Clearing trust company checks, 87- 103; by Federal Reserve Banks, 164. Clearing House, 71, 76, 94; examina- tions given up or amalgamated with those of Federal Reserve system. 435; Chicago, 97; certificates, 119; clearing for non-members of, at New York, 96-102, at Chicago, 97; city collecting department, loi ; out of town collections, 98-99; country arrangements, 97-99; Federal Re- serve system, 87-95. Clerical force, 446-449, Clippings) for investment files, 225. Closed — deposit accounts, 104 ; cor- porate trust accounts, 268; individ- ual trust accounts, 348. Coal trust, 263. Co-assignee, 291. Co-executor, 297, 359. Coin counting and wrapping devices, 80. Collateral, 1 19-123; arrangement of, 130; changes slip, 443; index, 123, 129; inheritance tax, 297; mortgage bonds issued by trust company, 141 ; note, 122; power of attorney to transfer, 123; record, 123, 129-132; substitution of, 129-131, 262; trusts, 262. Collection — by Federal Reserve Bank, 158; foreign, 243; items de- posited for, 76; maturity index, "JT, record, 7T, sheet, coupons, 3H-313; sheet, dividends, 313; sheet, regis- tered interest, 314; window, 74. Collector, rent, 325. Commercial agency statement, 179. Commercial and Financial Chronicle, Quotation Supplement, quotations derived from, 224. Commercial paper, 379-396; for agri- cultural purposes, 153 ; best type of, 391-395; brokers of, 389; buying of, dangers, 390-391 ; certain forms, highest type commercial asset, 395; " Claflin," 381 ; commodity, 382 ; creation of, by trust companies, 169 ; dealings in, open market, 389; defi- nition of, 379; direct borrowing upon, 156; discounting, 119, 128; eligibility, 152; "eligible," 156; es- sentials, of, 38b; general ledger ac- count of, 426; as investment, 375; Jenks Bill, type of, 391-396, lim- ited to commercial transactions, 153; lfs.t of, for discount, 156; " long "■ and " short," 380 ; maturi- ties of, ':38o ; maturities limited, 153 ; INDEX 537 open market for, 389-390; regu- lated by law, 381-382 ; requirements, for best types, 391 ; " self-liquidat- ing," 380; single name and two name, 387-388 ; theory of, 387 ; types and varieties of, 159; 380, 381-382. Commercial paper at Federal Reserve Banks — classes of, 159-161 ; collec- tions and renewals, 158; definition of, 380 ; policy concerning, 379, 388- 389; rates, 160; regulations of, 382; restrictions upon, 152-160; of small amounts, 156; testing of, 153. Commissioner of Banking, state, ex- amination by, 435. Commissions, 336, 355-359, 376; on corporate trusts, 294 ; fixed by court or statute, 357; general ledger ac- count, 239; individual trusts, 348, 349; record of, 358; trust, general ledger, 352 : see also Compensation. Committee — of board of driectors, 33; of estate, II, 300. Commodity paper, 382. " Community Trusts," 300. Company's general ledger, 424-433. Comparative — balance sheets, 432 ; monthly report, safe deposit de- partment, 412; trust department, balance sheet, 354-355- Compensation, 355; American Bank- ers' Association rules for, 35s ; in California, 355 ; " cutting," 356 ; ex- orbitant, 356; standardized, advan- tages of, 356: see also Commis- sions. Competitive bids for supplies, 454- Comptroller of the Currency, exam- inations by, 43S; reports of, upon National Banks, 434- Conservator, 11, 300. Consumption "indexes,'' 186. Contracts — deposit of valuables, 407 ; index of, 144; rent of safes, 402- 403 ; for supplies, 457- Controller, 423-424; relation of, to statistical department, 219: see also Comptroller. Cooperative agencies for credit in- formation, 182. Copier, roller, 442. Corporate trust department, 259-294; manager of, 66. Corporate trusts, 8-9, 292-293; ac- counts, 292-293 ; compensation for, 293 ; closed, 268 ; ledger, 293 ; record of, 263, 269, 275, 281, 292. Corporation mortgage, 259; in de- fault, 260, 288; record of, 263-264. Corporations — authority for opening account of, 414; certificate of elec- tion of officer, 407; forbidden to practice law, 68; public service, se- curities of, 373; resolution giving access to safe, 407. Correspondenct, 64, 440-446; real es- tate, 326, 445 ; transfer room, 446 ; trust, 445, Correspondent, foreign, 247. Cost accounting, igS. Costs — analysis of, 198-200, 204; of banking departme;it of trust com- panies, 201 ; ledger, 198 ; operating, 19S-216; "overhead," 200. Co-trustee, 2gg. Cotton statistics, 237. Counsel — for trust estates, 296-297 ; general, 67. Coupon bonds — arrangement of, 309- 311; due or called, 313; index, 304; label, 309; record individual trusts, 340; record of, issued in lieu of registered, 269; registered, 271. Coupon mortgage loan, 321. Coupons, 311; collection of, 334-335; collection sheet, 311-313; credit book, 313; cutting, 303. 308, 311. 313; credit slip, 313; in default, 315; deposit of, 77-78; envelopes, 270, for, 78} 270; paid by fiscal agent, 269; scratcher for paid, 270; state- ment oi paid, 271. Court — accounting to, 297-301, 348- 349, 351, 359; appointment of re- ceiver By, 291 ; compensation fixed by, 357; probate, surrogate, or or- phans', 297. " Court trusts," 27. Credit — accounts, general ledger, 425 ; average balance card for, 184- 185 ; book, coupon, 313, dividend, 315, interest, 314; information, ar- rangement of, 183, codification of, 183 ; Federal Reserve, how granted, 157; foreign, acquiring and estab- lishing, 244, 247. Credit department of trust companies, i69-i88i contrasted with statistical 538 INDEX department, 235 ; False Statement Act as assistance to, 176; functions of, 170; general study of credit by, 185-186; granting of credit by, 169- 198; keeping track of liabilities by, i8s ; relation of large and small borrowers to, 179; sources of in- formation for, 171, 179, 185-186. Credit, letters of, 252-256; agreement concerning, 254; record of, issued or guaranteed, 252. Credit slips — coupon, 313; deposit of valuables, 406, 409, 412; dividend, 314; interest, 314; mortgage inter- est and principal, 319-320; rent, 329; rent of safe, 406, 412; trust, 334, 349- Cremation of bonds by trustee, 263. Curator, 11, 300. Custodian, 12, 301 ; of enemy prop- erty, 15. Customers — acceptance agreement, 161-163; statement, for credit, 171- 175. Daily balance and interest slip — in- dividual depositors', 109-111; indi- vidual trusts, 350. Debit — accounts, general ledger, 426 ; balances, trust department, 336. Debts, preferred, 297. Deed — of assignment, 291 ; trustee under, 299. Default, record of interest in, 315. Delivered, record of securities, 307, 329, 339- 347. Delivery — of bonds by trustee, 261 ; " good," 123, 279-281 ; order for valuables, 410; rules of New York Stock Exchange for, 496-511; of trust securities, 302, 424. Demand loans, 118; form of note, 123-124; general ledger account, 427; interest on, 125-127; ledger, 123-125, 126; notice of change of rate, 135. Deposit — analysis sheet, 209; book, 74; care of, 103; savings depart- ment, 414-415 ; certificates of, gen- eral ledger account, 429; certificate of, of securities, 288-289 ; certificate of, of valuables, 407-410, 412 ; of securities, 400, 401 ; of valuables, 400, 407-410: see also Pass Book. Deposit slips — 73-74; for coupons, 73; filed, 113; posted, 108; savings department, 415, 418; "star" en- tries, 114. Depositary, 12, 301 ; commissions of, 294; under plan of reorganization, 9, 288. Depositors, individual — accounts opened, 103; bookkeeper, 105; daily balance and interest slip, no; in- dex, 104; card, 414; interest al- lowed, 109-ni; ledger, 105-106; sheet, 418; monthly statements, 74, 106-107, in; record of, accounts opened, 103; record of, accounts closed, 104; savings fund, 414; statement sheet, 106; trial balances, 108. Deposits — care of, 103-115; for col- lection, 76 ; coupon, 73 ; created through loans, 170; demand, 375; gross income value, 208; interest upon, 71, 109-111; made without pass book, 74; by mail, 74; modem ledger for, 106; monthly statement of, 74;. by organizations, 414; re- ceipt of, 73; rules and regfulations, 415; savings, 427; special, 427; sub- ject to check, 427, 428 ; time, 37s ; of trust companies with banks, 83. Depreciation of plant, 452. Deputy, appointment and identifica- tion of, 405, 408. Directorates, interlocking, 36. Directors; 32-36; attestations by, 35; chairman of board of, 54; commit- tees of, 33 ; eligibility, under Clay- ton Act, 36; examinations by, 437- 438; fees, 35; indirect returns to, 35 ; item of expense account, 146 ; of Federal Reserve Banks, 151. Disbursements of trust funds, 33S- 338; index of, 336. Discount — foreign, 242, 244, 245-246 ; at Fe'deral Reserve Banks, 152-162; rates, Ij33-i34. 160; sheet, of Fed- eral Reserve system, 133 : see also Commercial Paper. DistributiiDn — of expenses, 144-145 ; of interest accrued, 139. District of Columbia — code of bank- ing, etc., laws of, 461-471; trust companies in, 13, 421. Dividend — check, 143, 272; collec- INDEX 539 tion of, 314; declared, 285; general ledger account, 428; list, 143, 271, 28s; notice, 143, 272; orders, 78, 142 ; paid by fiscal agent, 271 ; rec- ord in security index, 305; on trust company's stock, 142; upon voting trust certificates, 286. Double liability of stockholders, 31. Draft advice and record, 251. Drafts — foreign, 243 ; documents connected with, 244; received for collection, 76. Due to banks and bankers, general ledger account, 427. Duplicate systems of ledger accounts, 106. Duplicating systems, 441. Earnings, analysis sheet, 208. Election — of directors, 30; of offi- cers, notice to safe deposit depart- ment, 406-407. Eligibility, elements of, in discount- ing commercial paper, 152-154. Employees, 446-450; character and ability essential in, 447; schools, welfare work, and other benefits or rewards for, 447; tests of, men- tal and physical, 446. Employment manager, 447. Enemy property, 15, 18-19. England, Bank of, 133. Envelopes — for coupons, 270, 312- 313 ; for insurance policies, 333 ; for keys, 331; loan, 132; "outlook," 272; salary, 149. Equipment, maintenance of, 147. Errors in cash, 82, 430. Escrow, 12, 289, 301. Estate, index, 348. Examinations, 424, 433-439. Exchange — arbitration of 246 ; bill of, types and draft, 382-384; camb- ist, 246 ; foreign, 241 ; foreign de- partment, 249 ; rate of, defined, 241 ; "indexes" of, 186; policy and mar- ket, 248; record of, bought and sold, 255. Exchanges — bank, 83; clearing house, 83-103. Executor, 10, 296, 300, 359, 363; and trustee, combined, compensation of, in Pennsylvania 359. Expense account, 144-148. Expense! — check for, 145; distribu- tion of,, 146 ; of foreign banking, re- duced by branches, 258; general led- ger account, 147, 428, 430; index of 148; legal, 146; miscellaneous, 147; payable, general ledger account, 146-147, 428, 430; record of, 144- 148. Expiration — notice, collateral insur- ance, 333 ; insurance policies, index, 332 ; of leases, index, 329. Express company agreement to trans- port valuables, 410. False Statement Act, 176. Farmers' Loan & Trust Co., New York, 4. Federal Reserve Act — as to accept- ances, 161; compliance with, 44; control of Reserve Banks, 151 ; di- rect borrowing under, 151; giving power to define commercial paper, 382; granting fiduciary powers to National Banks, 13, 47 ; maturity of paper limited, 153; providing for both one and two name paper, 387; reserve requirements, 117; restric- tions upon loans, 156; theory of commercial paper under, 387. See also Federal Reserve Banks, Fed- eral Reserve Board, Federal Re- serve s'ystem. Federal Reserve Agent, 151 ; applica- tion to, for acceptance power, 161 ; as chaii-man of Federal Reserve Bank board of directors, 151. Federal Reserve Banks — acceptances at, 161 ; application form, for redis- count, 154-156; borrowing from, direct, 156, perversions of, 157; clearing house service of, 164; col- lections by, 158; cooperative exam- ination and oversight by, 434; con- trol of, 151; credit, how granted by, 157; dead balance at, 164; di- rectors,, 151 ; essentially coopera- tive institutions, 434; loans, dis- counting not permitted, for certain purposes, 153 ; making use of mem- bership in, 151-168; power of defi- nition o'i commercial paper by, 382 ; rates of discount, 160-161 ; redis- counting by, 152-162 ; rediscounting, application form for, 154-156; re- S40 INDEX newals at, 158; reports of Comptrol- ler on National Banks accepted by, 434 ; reserve balances at, 164-167 ; reserves, required, of member trust companies, 117; statements of bor- rowers to, 153, 157 ; telegraphic communication between, 91, 157, i6s. Federal Reserve Board — application to, for fiduciary powers by banks, 48; application to for membership, 40-42; capital issues regulation by, 36s; discount rates fixed by, 133; granting of fiduciary powers by, 13 ; par list, 165; policy, regulations, and theory as to commercial paper, 383, 387-388; restrictions of, upon lending by trust companies, 13; storage of gold with, 90. See also, Federal Reserve Act, Federal Re- serve Banks, Federal Reserve sys- tem. Federal Reserve system, 39-S3; ad- vantages and disadvantages of membership in by trust companies, 49-52, 87, 103 ; application for mem- bership in, 40, requirements for, 41, rejections of, 43; resolution signifying intention to enter, 42; application to, for fiduciary powers, 48; balances of member banks, 92; " call " and collateral loans un- known to, 133; character of, so; clearing checks, etc., through, 87- 95; conditions as to admission, 43; control of member banks, 151 ; cost and saving through, 165 ; direct bor- rowing from, and perversions of, 157; discount rates and table of, 133-134; duties and obligations of members of, 46 ; examination and oversight of accounts by, 435 ; " gold settlement fund," 90 ; gold storage with, 90; investments by trust companies under, rules for, 136; making use of, 151-168; par list, 91 ; penalties, as to deficiencies of reserves, 46, 93; privileges of, 45 ; problems of trust companies in relation to, 167-168; re-discounting, 152-153; regulations, for trust com- panies, 90-94; requirements as to reserves, 117; reserves, of mem- bers, 92, 95, 164, penalties for im- pairment of, 93 ; rules for fiduciary operations by members, 13S-136; should trust companies join, 49-51; state banking reports accepted by, 435; transfers, etc,, by telegraph, 91 ; trust functions conferred upon National Banks, 47. Fees, record of, 358. Fidelity insurance, 7, 13, 419, 448. File — of credit information, 183; of borrowers' liabilities, 185. Filing system, vertical, 442-446. Finding index, correspondence, 442. Fire insurance, 331-333; collateral with mortgage, 318, 322, 331-333. Fiscal agent, 9, 66, 269-270; commis- sions, 294. Flat coupon bonds, 140, 309. Foreclosure of mortgage, 318. Foreign -^ agency, 247; accounts, led- ger sheet, 215; "bill," 244; busi- ness, controlling, 258; collecting, 243; correspondents, 247; credit, acquiring, 247; department, earn- ings analysis of, 209; discounting, 242; drafts, and documents accom- panying, 244; remittances, 245. Foreign banking, 239-258; contrasted with domestic, 240; organization for, 241. Foreign exchange, 245-246; account- ing system, 251 ; arbitration of, 246; department, 249-257; policy and market, 248. Forms — index of, 457-458; list of, illustrated or described, and sup- plementary lists, 527-532. General ledger, 138, 141, 146, 147, 148, 424-433 ; corporate trust, 293 ; trust, 339, 348, 351-355- General officers, 54-69, 146, 423. Girard Trust Company, Philadelphia, 4- Gold — in- exchange transactions, 249; settlement fund, of Federal Reserve system, 90; settlement of trade bal- ances with, 241. Good delivery, 123, 279-280. Government — bonds, 371-372; regu- lation of banks and trust companies, 13-1S. Great Britain — legal investments in, 363; Pdblic Trustee Act of, 18, ad- INDEX 541 visory committee upon investtaents, 377- Graphic charts, in statistical analysis, 225. Ground rents, 322, 341 ; as invest- ments, 373; general ledger account, 426. Guardian, 11, 300. Housekeeper, 451, 453. Identification card — depositor of valuables, 407; deputy, 404, 408; safe renter, 401, 403. Illinois, banking laws, 24, 71. Illinois Trust and Savings Bank, 413. Inactive accounts, 114. Income — distinction between princi- pal and, 138, 335 ; general ledger, 426; individual trust ledger, 349; trust, general ledger, 351. Income, nature of, 360-362. Income tax — advice concerning, 197 ; analysis of income for, 193-194, forms for, 194-195; text books upon, 192; regulations of Internal Revenue Bureau, 195 ; returns, 192-197; state, 193; withholding, 19s : see also Taxes. Individual depositors — accounts opened, 103 ; bookkeeper, 105 ; daily balance and interest slip, 109; in- dex, 104; interest allowed, 109-111; ledger, 109-111; record of accounts opened, 103; record of accounts closed, 104; trial balances, 108. Index — balances for investment, 378 ; beneficiaries, 254; closed deposit accounts, 104, 415; collateral, 123, 129; collection maturity, 77; con- tracts outstanding, 144; corre- spondents, 442; credit information, 183; depositors of valuables, 407, 412; forms and equipment, 458; individual depositors, 104; insur- ance policies, company's, estate, lo- cation, maturity, 332-333; leases maturing, 329 ; mortgage corre- spondence, 446; mortgage interest payers, 320 ; mortgage location, 322 ; mortgage maturity, 322; mortga- gors and interest payers, 321 ; prin- cipal balances, 378; quotation, 220- 223; real estate location, 329; safe renters, 402-404, 412; safes rented, 40s; securities, 304-308, 311, 314; securities maturing, 307; securities for sale, 141 ; signatures, depositors, 104; signatures, savings department, 414-415 ; stockholders, 142, 273 ; ten- ants, 329; trust balances for invest- ment, 378; trust disbursements, 336; trust estates, 348, 445; trust se- curities, 304, 308; valuables depos- ited, 408-409; vouchers, 148. " Indexes," of business conditions, 186-187. Individual trusts, 10-12; daily bal- ance and interest slip, 350; depart- ment, 295-359; ledger, 329, 348-351; manager of department, 67; record of, 301, 338-349; scratcher, 350 ; trial balances, 351. Indorsement of checks, 83 ; by trust department, 335. Inheritance taxes, 195-196. Inspection card, real estate, 329-330. Inspector^, real estate, 325. Insurance, 7, 13 ; against forged or altered' checks, 87 ; clerk, 322 ; collat- eral with mortgage, 318, 322, 331- 333 ; expiration notice, 333 ; life, fi- delity and title, 419, 423 ; on real es- tate, 331; records, 322; risks not compatible with trust business, 7, 13, 422* slip or memorandum, 333. Interest — accrued payable, 428-430; accrued, distribution of, 139; ac- crued receivable, 139, 426; and bal- ance slip, 109, 350 ; bill, 125 ; col- lection of, 314; in default, record of, 31s; on loans, 119, 125, 127, 133; on mortgages, 318; orders depos- ited, 78; paid depositors, 71, log- in, 428, 430; paid by fiscal agent, 274; rate, notice of change in, 125, 135 ; receipts, 426, 430 ; record, in security index, 305 ; on savings ac- counts, 418; slip, 109; statement to depositors and receipt for, m; ta- ble (i day @ 2%), 112. Interlocking directorates, 36. Internal Revenue Bureau, income tax regulations of, 195. Intestate laws, 298. Inventory, 297, 300; and schedule of annual order for supplies, 263, 264, 4SS- 542 INDEX Investing, machinery of, 377-378. Investment — files, 225; index of bal- ances for, 378; ledger, 138. Investments, 13S, 360-378; assigned by trust officer, 69; balance for, record and index of, 378 ; conserva- tive, 367; "dead," 368; files, 225; fundamental principles, 360-362 ; ideal, 362; individual trust ledger, 350; interest accrued upon, 138; legal, 13s, 363-365, in Pennsylvania, 363, in New Hampshire, 363-364; made by President and finance com- mittee, 61J making and changing, 377, 378 ; rules for making, 366-369 ; rules of Federal Reserve system concerning, 135-136; in stocks, 366- 369; styles in, 370; for trust ac- counts, 354; of trust companies, 135-140; trust, general ledger, 350; types of, 370-37S- Irredeemable ground rent, 322. Jenks Bill, 391-396; described, 391. Jenks, John S., Jr., 391. Joint — access to safe deposit box, 399, 405-406; account, 414. Journal — general, 430, 431; corpo- rate trusts, 293; entries, 148, 426, 428, 430; trust general, 354. Keys ^ envelopes for, 331; for safe deposit boxes, 404. Label, coupon bond, 309. Labor turnover, cost of, 446. Land Transfer Act, Torrens, 326, 421. Law — " blue sky," 365 ; concerning in- vestments, 363 ; trust companies forbidden to practice, 68. Laws, code of, District of Columbia, 461-471. Leases, 325 ; index of expiration of, sap- Ledger — ^ bills receivable, 128, 129; bond, 185; commercial paper, 128; corporate trust, 293; demand loan, 123, 126; deposit of valuables, 222; depositors, authority for entries in, 114; expense, 202, 203, 204; foreign accounts, 251; general, company's, 293, 424-433; income tax return, 194; individual depositors, 105, iiS; individual trust, 129, 348-351; in- vestment, 138; liability, borrowers, 18s; liability, foreign banking, 255- 256 ; loan, 123 ; loose-leaf, versus bound, 106; mortgage, 319; rent, 328, 329 ; rent of safes, 405 ; savings fund department, 415-419. Legacies, 297, 338. Letter of Credit, 252; agreement, 254; record of, issued or guaranteed, 252. Letters —^ copied, filed, etc., 440-443 ; of credit, 252-256; testamentary, 297. Liabilities — general ledger, 255, 426; keeping track of, 185. Liability ^- of safe deposit company, 399, 405 ; of stockholders, 31 ; of trust cbmpany, 302; of trustee un- der corporation mortgage, 8, 259. Librarian, 225. Library, '22s. Life insurance, 7, 13, 230, 419. Life tenant, 365. Lighting and heating, expense ac- count, 146. " Line " in|lex, insurance policies, 333. List of forms, illustrated or de- scribed; and supplementary lists, 527-533'. Listing stocks or bonds, requirements New York Stock Exchange, 480- 496. Loans, 1 18-132; accession book, 123- 125; application form for, at Fed- eral Reserve Banks, 154-156; called, 119; cfcrk, 1 18-123; demand, 118, 122-127, 427; envelopes for, 132; from Federal Reserve Banks, 152- 162 ; on " foreign bills," 244 ; gen- eral ledger accounts, 426; ledger, 123, 125-127; margin upon, 122, 132; mortgage, appraisal of, 315- 316; to officers and directors, 120; rates of interest upon, 119, 125, 133; rates of mterest at Federal Reserve Bank, New York, 160; time, 127- 128, 133, 426; treasurer responsible for, 63} "self liquidating," 156. Location index — insurance policies, 332 ; mortgages, 322 ; real estate, 329. Loose-leaf— book, for statistics of an industry, 229; ledger, 106, 123; ledgers, 'versus bound, 106; record of statements, 229. Loss, prqfit and, 429-430. INDEX 543 Luncheon room, 261-262, 453; item- ized expenses, 147. Machinery of investing, 377-378. Mail — banking by, 79; deposits by, 79, 144; outgoing, 447; room, 440- 446 ; register of incoming, 412 ; sort- ing tray, 442. Maintenance — of building, 147; of equipment, 147. Manager — of Corporate Trust De- partment, 66 ; employment, 447 ; of Foreign Exchange Department, 249; of Individual Trust Depart- ment, 67; of underwriting syndi- cates, 287, 294. Margin on collateral loans, 122, 132; ten-point rule, 122. Marriage settlement, deed of, 300. Maryland, ground rent in, 322. Massachusetts — incorporation and reserve fund of trust companies, 23; regulation of trust companies in, 14, 23. Maturity — of mortgage loans, 318; notice, time loans and commercial paper, 127. Maturity index — • collection items, ^^ ; insurance policies, 332; leases, 329; mortgages, 322; securities, 307-308. Messengers and watchmen, 450; ex- pense account, 146. Minutes of Board of Directors, 65. Miscellaneous — securities, arrange- ment of, 308, index of, 306, record of individual trust, 340 ; subjects, 440. Money — exchanging foreign, 244, 246 ; new, 81 ; rate, 133. Mortgage, 31S, 323; abstract of cor- poration, 264; application for, and form, 316, 444; assignment of, 317; bills, 320, 321; charge slip, 320; cor- respondence, 445 J credit slip, 320; foreclosure of, 318; general ledger account, 426; and ground rents, as investments, 373 ; held for trust es- tates, 317; index of payers, 321; insurance, collateral with, 322, 331- 333; interest on, 321; ledger, 319; location index, 322 ; maturity index, 322; record, of corporation, 263- 269, 293; record of individual trusts, 341; recorded, 317; satisfac- tion oir by trustee, 263 ; scratcher, 321 ; to secure bond issue, 259, 426 ; settlement, 317, 320. Mortgagors, index of, 321. Mutual insurance companies, 29, 419. National Banking Act, 31. National Banks, Comptroller's reports of, accepted by Federal Reserve Banks, 434: see also Banks. New accounts — depositors', 103, sav- ings department, 414. New Hampshire, legal investments in, 363-364. New York — general trust company law, 20; rates of discount, Federal Reserve Bank, 160; trust com- panies, banking functions of, 71. New York Clearing House, 71, 76, 94; regulations of, 96-100. New York Life Insurance and Trust Company, 4. New York Stock Exchange — re- quirements for listing stocks and bonds, 480-511; rules, 274-276; rules for dealing, 502; rules for delivery, 496-511. New Zealand — Public Trust Office, 17; trustee companies in, 7. " No defence," or " no set-off," cer- tificate of, 316. " No protest," 78. Note — broker, 389; collateral, 122; promissory, 159, 382-384. Notes — arrangement of, 132 ; collec- tion of, 314; of Federal Reserve Banks and form, 81, 123, 124; and miscellaneous securities, individual trusts, 306, 341 ; types of, 3S2-383 ; received for collection, 76; Victory, rates of discount, New York Fed- eral Reserve Bank, i6i : see also Commercial Paper. Notice — change of interest rate. 127, 135; election of officers, 219; ex- piration of collateral insurance, 333; withdrawal, savings depart- ment, 414, 415. Numerical filing system, 442. Office building, 451-453. Officers, 54-70 ; general, 146, 423 ; loans to, 120; positions combined, 54, 61, 65, 69; women as, 448. 544 INDEX Open market, for commercial paper, 389. Operating costs — of trust companies, 198-216; apportionment of, 200-203; of banking department, 201 ; " load- ing" of, 206; "overhead," 200. Order book — for repairs to real es- tate, 331; special for check books, 144; for supplies, 144, 457. Organizations, corporate or unincor- porated, authority for depositing saving funds by, 414. Organizing a trust company — under special acts, 20 ; under general laws, 20-36; in California, 25; in Illinois, 24 ; in Massachusetts, 23 ; in New York, 20; in Pennsylvania, 21. Orphans' court, 297. Overdrafts, 114; foreign credit, 247; notice of, 114. Overhead" expenses, 200; appor- tionment of, 200. Paper, commercial, 379-395- " Par list," of Federal Reserve Board, 165. Pass book, 74, JT, 105, 106, in, 113, 414-416, 418; control clerk, 415, 416; entries, verification of by depositor, 415. Pay roll, 149; slips, 81. Payers, mortgage interest, index of, 321. Paying teller, 79-87, 401, 406; daily proof, 416; errors by, 81-82; sav- ings department, 416; settlement book, 85 ; trust department, 33S-338. Payments — book, petty cash, 148 ; stopped, sheet, 86. Pennsylvania — executor and trustee in, combined, compensation of, 359; general corporation law, 21 ; ground rent in, 322; legal investments in, 363, title insurance in, 421. Pennsylvania Company for Insur- ances on Lives and Granting An- nuities, 4. Pensions, 447, 449. Perpetuity, trusts in, 300. Petty cash — for payment of coupons, 270; payments, 148; receipts, 148, 430. Philadelphia ground rents, 426. Phonograph, used for dictation, 441. Plant, depreciation of, 452. Plate glass insurance, 332. Portfolios, for securities, 131, 140, 308, 309. Postage stamps — see Stamps. Postings — general ledger, 415-418; individual depositors' ledger, 106- 109 ; savings department ledger, 419; stock ledger, 285; trust led- ger, 3SP. Power of attorney — general or spe- cial, II, 300; to transfer collaterals, 123; to transfer securities, 274; to transfer stock, 280. Power — of sale, 323; of substitution, 281. Premium, charged off, 139. President, 54; 57-61. Principal ' — accounts, general ledger, 426; balances, index of, 378; dis- tinction between income and, 138, 335; individual trust ledger, 350; paid by fiscal agent, 274; trust gen- eral ledger, 352. Probate court, 297. Production "indexes," 186, 187. Profit and loss, general ledger ac- count, 351, 429, 431. Profit sharing, with employees, 447. Profits — not to be made by sales to trust estates, 376; undivided, gen- eral ledger account, 429, 430. Promissory note, 382. Promotions, 448. Properties, — custodian of enemy, 15 ; rented and vacated, record of, 329. Protest, notes, etc., 78. Proxy, voting by, 30. Public Accountant, examination by, 438-439- Public service corporations, bonds of, 373- Public Trustee, 15-19; in Great Brit- ain, 18; advisory committee with, upon investing, 377; under British Trading with the Enemy Act, 18; in Nev^ Zealand, 17. Purchase — ledger, 146, 148; money mortgage, 316; of supplies, 454- 4S8. Quotation index, of securities, 220; cards qf, annual, and monthly, 220- 223; divisions of, 223, INDEX 545 Quotations, stock, 121. Rate — of charges in general, 336, 355-359; of interest on loans, iig, 123, 133; notice of change of, on loans, 127, 135; of rediscount by Federal Reserve Banks, 133-134. Real estate, 323-333 ; abstract record of, 341; appraisal, 315-316; corre- spondence, 445 ; department, 445 ; general ledger account, 426; held by trust company, 136, 451 ; inspec- tion card, 426; insurance upon, 331- 333, 420; insurance expiration in- dex, 332 ; officer, 323 ; records, 325 ; resolutions authorizing sale of, 65, Rebates, rent of safe, 406, 412. Receipt — and identification card, rent of safe, 402-403; and identification card, deposit of valuables, 408-409; for pass book and cancelled checks, 113; for rent of safe, 402, 403; of savings deposits, 414; for securities delivered, 303, 307; for taxes, 318, 319; temporary, for securities de- posited, 288; of trust funds, 334- 335, 424; for valuables, 409. Receipts book, petty cash, 148. Received, record of securities, 301, 307. 329, 338, 348. Receiver, 12, 292. 301; accounts, 292; commissions, 294. Receivers' certificates, 292. Receiving teller, 72-79, 40i. 4o6, 415 ; daily proof, 415 ; daily settlement, and form, 75-76; savings depart- ment, 415; trust department, 313, 320, 334-33S- Reconcilement form, for depositors, 108. Record — of accounts, foreign. 251; of analyses, industrial, 229; of bonds paid, cancelled, cremated or returned, 268; of bonds received, certified and delivered, 268; chart, 230; of collateral, 123, 129, 130; of collections, 79; of commissions and fees, 358; of corporate trusts, 263, 269, 276, 281, 293 ; of corporation mortgages, 263 : of deposit accounts closed, 104; of deposit accounts opened, 104; draft advice and, 251; of drafts, foreign, 251; of exchange bought and sold, 255 ; of expenses. 145-148 ; of foreign accounts, 251 ; of individual trusts, 302, 339-354; of interest in default, 315 ; of let- ters of credit issued or guaranteed, 25s; of mail, 441 ; of persons enter- ing safe deposit department, 398, 410; of properties rented and va- cated, 329; remittance advice, and, 251 ; of safes rented and surren- dered, -411; of securities delivered, 308, 329, 339; of securities received, 302, 307, 329, 338, 341; of state- ments, loose-leaf, 229; of stop pay- ment orders, 86 ; of supplies, 457 ; of valuables deposited and with- drawn," 410. Recording — of mortgage, 317; of ti- tle to feal estate, 326. Redeemable ground rent, 322. Redemption — bonds subject to, 271; provisions, 262, 314. Rediscounting, process of, at Federal Reserve Banks, 152. Register — of bills discounted and purchased, 386; stock, 276. Registered bonds — care of, 308 ; in- dex of, 304-306; record of individ- ual trusts, 341 ; record of, issued in lieu of coupon, 269; transfer of, 286. Registrar, 9, 66, 274-276; commis- sions, 294; contract with, 275. Registration — of real estate trans- fers, 326, 420-421 ; of trust secur- ities, 302. Regulations, of safe deposit depart- ment, 402, 408. Release, 338; deposit of valuables, 409. Remainderman, 365. Remittance — advice and record, 251; clerk, 335. Renewals — by Federal Reserve Bank, 158; safe deposit depart- ment, 411. Rent — bill, 325, 329; collection of, 325, 327; credit slip, 329; insur- ance, 332; ledger, 327, 329; lists, 324; of safes, 396, 397; 401-407; receipt for, of safes, 402, 403. Rentals — safe deposit department, 411 ; general ledger account, 429. Reorganization — depositary under plans of, 9, 288-291 ; record, 290. 546 INDEX Repairs — to real estate, 323, 324, 331, 336; bills for, 331, 338; charged to income, 452-453; checks for, 33 1; inspection of, 325; orders for, 331. Reports, 424; daily cash, 432; safe deposit department comparative mpnthly, 412; to state banking de- partment, 136, 433 ; to stockholders, 30, 433- Requisition, for supplies, 457. Reserve — Act ; Agent ; Banks ; Board; system: see Federal. Reserves, 13, 63, 152, 115-117; avail- ability and character of, 115-116; gold, 152; of members with Federal Reserve Banks, 165-167; penalties for impairment of, 93; problems concerning, simplified by member- ship in Federal Reserve system, 117; required in Massachusetts, 23; to secure policy-holders, 419. Resolution — giving access to safe de- posit box, 406; signifying intention to enter Federal Reserve system, 42, applying for fiduciary powers, 48. Responsibility of trust companies as corporate trustees, 8, 259. Restaurant, 453-454; itemized ex- penses, 147. Risks, insurance, etc., not compatible with trust business, 7, 14, 421. Roller copier, 442. Safe deposit department, 12, 147, 397- 412; comparative monthly report, 412 ; index of safe renters, 402 ; rentals, general ledger account, 429. Salary, 55, 448; book, 149; checks, 149 ; executive, apportionment of, in costs, 2CX); list, 149; payment of, 64, 149. Sale — power of, 323 ; of real estate, agreement, 330-33I- Sample books, supplies, 457. Satisfaction of mortgage by trustee, 263. Savings fund-department, 413-418 ; bookkeeping methods, 417-419; de- posit book, 415 ; deposit slip, 415 ; deposits, general ledger account, 427 ; deposits not subject to check, 415 ; item in expense account, 147; rules and regulations, 415: Schedules, of securities, 289. Scratcher, — for coupons paid, 270; individual trusts, 350. Seal, 27. Sealing machine, 442. Secretary, 64-65, 442; private, and stenographer, combined, 441. Securities — analysis of, 225-233 ; ar- rangement of company's, 140; basic information concerning, 226; care of, 12;' trust, 301-314; carried for s^le, 376; delivered, record of, 308, 329, 339, 347; deposit of, 288, 400- 401 ; engaged but not paid for, 378 ; held for trust investments, 304, 308- 311; index of, for sale, 141; index of, quotation, 220-225 ! information concerning, sources of, 225 ; " le- gal," 363; machinery of investing in. 377'-378; maturing, index of, 308; maturity of, 374; miscellane- ous, 306; public service, 373-374; purchase and sale of, 140-141, 376- 378 ; taxing power behind, 372-373 ; received, record of, 302, 307, 329, 338, 341 ; record, of individual trusts, 339 ; for sale ledger, 141 ; shritikage of, 367; unmarketable, not to be sold to trust estates, 276; worthless, 306, 309. Security, required of trustees, etc., 297, 299. Separation of trust assets from com- pany's, 5, 295, 296. Settlement — for mortgage, 317, 320; paying teller's, 82, 83, 85; for real estate, memorandum of, 331 ; re- ceiving teller's, 75, 76; trust dis- bursements, 338; trust receipts, 335. Shelves, roller, 310. Signature — card, 140, 414; joint, 414; index, depositors, 104; index, sav- ings department, 414, 415. Signing machine, 261. Signograph, 261. Sinking fund — of bond issues, 377 ; provisions, in corporation mort- gages, 262. Social service, etc., for employees, 447- Sorting tray — bookkeeper's, 108; for dividend checks, 273; for letters, 442. INDEX 547 Special deposits, general ledger ac- count, 427. Specimen signature index, 104, 414, 415- Stamps, postage — box for, 442 ; gen- eral ledger account of, 426 ; method of handling, 442; saving Of, by use of mail sorting tray, 442. " Star entries," deposit and charge slips for, 114. State regulation of trust companies, 14, 119, 434-435. Statements, 424; of borrowers, for credit, 171-175, analysis of, 176, compromise upon, 172, sample form of, 173-175, as to solvency and strength, 175, as to relation of as- sets to liabilities, 177, as to relatioii of assets to volume of business, 177; not required for small loans, 156; of borrowers, for Federal Re- serve Bank, 153-156 ; of commercial agency, 179; of condition, 30, 136, 433-434; of coupons paid, 271; to depositors, 74, 106-107; individual trust department, 350-351 ; record of, loose-leaf, 229, Stationery, 455. Statistical department, 217; as ad- viser, 235; assistance of, in invest- ing, 377 ; contrasted with credit de- partment, 235 ; correspondents and investigators for, 2'iJ, 238; files, 225; functions of, 218; future de- velopment of, 234; Government re- ports for, 236; organization of, 219- 220; province of, 216; records, and reference library of, 2ig, 225'; sta- tistician of, 219. Statistician, 219-220. Statistics — of cotton, 237; of in- dustries, 229, 237; export and im- port, 238; relative to real estate loans, 316. Stenographers, 440-441. Stock — analysis, and basic informa- tion concerning, 228; care of, 301, 308; certificates, 142, 276, 277, 279, 280; delivered by transfer, 283; gen- eral ledger account, 426; index, 304-308; inventory sheet (sup- plies), 455; as investment, 375; job- bing. 288; ledger, 142, 271, 284-285; record (supplies), 457; listed in different cities, 285 ; part paid, 284 ; placed to order, 283 ; quotations, 121; register, 276; requisition (sup- plies), 457; "rights," 375; rules for listing of at New York Stock Ex- change, 480-511; sheet, record of individual trusts, 340; transfer, 142, 302; transfer book, 282, 284; trans- fer sheet, 28s ; transfer taxes, 286 ; trust certificates, 286. Stock exchange — collaterals, 123 ; New York, requirements for listing stocks or bonds, 480-495 ; New York, rules for delivery, 496-511. Stockholders, 29-32; examination by, 438; in,dex of, 142, 273; liability of, 31; meetings, 30; reports to, 30, 434; represented by directors, 32; relation of, to voting trusts, 288. Stockkeejfer, 455. Stockroom, 457, Stop pajfment orders, 86; record of, 86. " Straight promissory note," 159. Subject, filing by, 445. Substitution — of collateral, 129, 131 ; power of, 280. Superintendent of building, 450. Supplies '— purchase and care of, 454- 458; record of, received, 455. Suretyship, 7, 13, 420, 448. Surplus, ZT, general ledger account, 429. Surrender, of safe, 404-405, 410. Surrogate's court, 297. Syndicate — accounts, 287 ; commis- sions, 294; correspondence, 444; manager, 9, 286-288; participation in, 137, Tag, for valuables deposited, 409. Tax department, 189-197; organiza- tion of, 193 ; work of, 196. Taxation, of securities, 365. Taxes, collateral inheritance, 297; corporation excise, i8g; cost an- alysis of, 204; department of, 189- 197; federal income, 189-190; gen- eral ledger account, 427, 430; high, come to stay, 191; inheritance, 195- 196; payable, general ledger ac- count, 427, 429, 430; on real estate, 324; receipts, 318, 319; risks of ad- vice concerning, 197; trust com- S4« INDEX pany's interest in, as adviser, as taxpayer, as trustee, 191 ; and the War, 191. Telephone, expense account, 146. Teller — paying, 79-87; 401, 406, 416; receiving, 72-79, 401, 406; savings department, paying, 414, 416; trust department paying, 335-338; trust department receiving, 313, 320, 334- 336- Temporary — certificates, 288; invest- ment ledger, 138. Tenants, index of, 329. Testamentary — letters, 297; trustee, II, 299. Time loans — form of note, 123, 124; general ledger account, 426 ; ledger, 127; maturity notice, 127; rate of interest on, 134, 135. Title insurance, 7, 13, 317, 419-423; registration, 326. Tornado insurance, 331. Torrens land transfer system, 326, 421. Trade acceptance, 382. Trade balance — defined, 241 ; gold settlement of, 241. Trading with the Enemy Act, IS ; amendment of, 17; British, 18; de- positaries under, 16; deposits un- der, amount of, 16. Transfer — binder corporate trusts, 268; binder individual trusts, 348; book for bonds, 285; book for stock, 142, 282-284; books closed, 143 ; files for correspondence, 446 ; sheet, 28s; of title to real estate, 326 1 of trust securities, 302. Transfer agent, 9, 277-286; commis- sions, 294; distinction between reg- istrar and, 274 ; dividend list pre- pared by, 271-272; liability, 277; duties concerning transfer taxes, 286. Travellers — letters of credit, 252- 256; checks, 253. Treasurer, 62-64, 72. Trial balances — individual depos- itors, 109 ; general ledger, 424-425 ; individual trusts, 351; savings de- partment, 416. Trust — accounts, investment for, re- sponsibility attending, 377 ; cash book, 339; funds deposited, 333; funds, disbursement of, 335 ; funds, receipt of, 334, 335; funds, unin- vested, 296, 338, 35°, 352; general cash book, 354; general journal, 354; general ledger, 338, 350, 351- 355 ; ledger, individual, 348-351; letters filed, 446 ; officer, 66-69, 301 ; papers filed, 348; voting, 286: see also. Trusts. Trust companies — actuary, 55; ad- vantages and disadvantages of, 2, 5; approved by courts, 2; attitude towards acceptances by, 161 ; should hot hold own acceptances, 164 ; banking functions of, 1-7 ; bond department of, 376; borrow- ers from, keeping track of liabilities of, 185 -; branches, foreign, 238, 258; cost accounting of, 199-216, analy- sis of, 200; charges and compensa- tion of", 25, 3:i6, 3S5-3S9. standard- ized, 3'S5, in California, 25; chair- man of board of, 54; charter and capital,„ 20-29; t^ity collecting department, loi ; clearing house re- lations,, 89-103; collecting checks through Federal Reserve system, 165 ; collecting non-clearing house items, loi ; committee on investing, 377; compared with banks, i, 14, 71 ; competition between, 357 ; as competitors of banks, 87 ; costs and savings to, through Federal Re- serve system, 165 ; control of busi- ness by, through stock holdings, 375 ; controlled by banks, 52, 168 ; costs of service, 257-259; creation of commercial paper by, 169 ; credit given Ijy, basis of, 171, in Illinois, 24, test of, 171 ; credit and credit department, 169-188; functions of, 170; current problems of, in rela- tion to Federal Reserve system, 167; departments, 199; deposits in, S ; deposits with banks, 83 ; as de- positories, under Trading with En- emy Act, 16; development, 4-5; distribution by states, 4-5 ; earn- ings of-, analysis, 206; examina- tions of, 434; failures, 5; first or- ganized, 4; forbidden to practice law, 68; foreign department, 238, 243; functions, I-18; insurance by, life, liability, title, 7, 13, 419-422; INDEX 549 interest of, in tax matters, 191-197 ; joining Federal Reserve system, advantages and disadvantages, 49- 52, 87, 167 ; liabilities, 2, 302 ; liable for altered or forged checks, 85; loans by, on own stock, 28; mem- bership in Federal Reserve system, 41-43 ; method of organizing, 20- 29 ; mutual, 29 ; in New York, bank- ing functions of, 71 ; objections to, 2, 6; officers, 54; operating costs, 198-216; organization of business of, 55 ; overhead expenses, 200 ; per- sonnel of, 447 ; powers of, 2-4 ; pol- icy, as to commercial paper, 389- 390; purchase of own shares, 28; regulation of, as to discounting pa- per, 119, as to investments, 135, by federal government, 13, by separate states, 14-15, in the District of Co- lumbia, 13, 421, in Massachusetts, 14, 23, 66; responsibility of, as cor- poration trustee, 8; reserves, 115- 117; reserves under Federal Re- serve system, 164, 166-167; tend- ency to composite type .of, with bank, 168 ; titles of, 7 ; women in, and as officers of, 448. Trust department — ■ corporate, 259- 294 ; individual, 295-359 ; item in ex- pense account, 147; paying teller, 335-338; receiving teller, 313, 320, 334. 336. Trustee — commissions, 294 ; and ex- ecutor combined in Pennsylvania, compensation of, 359; liable for losses, 365; Public, 15-19; rules for investments made by, 362-376 ; under cprporation mortgages and trust deeds, 11, (A, 259-269; under deed, II, 300, 362; under will, II, 298- 299; of voting trust, 286. " Trustee company," 7. Trusts — bureau of, 16 ; car, 263 ; coal, 263; for charities, 300; col- lateral, 262 ; community, 300 ; corpo- rate, 8-9, 66, 259-294; "court," 26; enemy property, 15; index of, 348, 445 ; individual, 10-12, dfj, 295-359, 370; opened and closed, monthly statement of, 355; in perpetuity, 300; public, 15-19; record of corporate, 263 ; record of individual, 302, 338- 351; voting, 286: see also Trust. Typewriting, 440. Underwriting syndicate — manager of, 9, 286-288, 294; participation in, 137- Undivided profits, general ledger ac- count, 429, 431. Uninvested trust funds, 296, 335, 338, 350, 375- United States — bonds, best of all in- vestments, 371 ; Department of Ag- riculture, crop reports of, 187. Vacation!, 449. Valuables — care of, 12 ; delivery or- der for, 408; deposit of, 400, 407- 410; receipt for, 409. Vaults — safe deposit, 397 ; trust, 302, 308. Vertical filing system, 442-446. Vice-President, 55, 61. Visitors to safe deposit department, record of, 410. Voting trusts, 286; limited to five years in New York state, 286; trust company, as agent, to hold certifi- cates of, 286. Voucher, 425 ; for expenses, 145 ; in- dex, 148; record, 145 ; for trust dis- bursements, 336, 337; and voucher check, 115. War — the Great, shrinkage of in- vestments incident to, 367 ; and tax- ation, 191 ; taxes, to continue long, 191. War Finance Corporation, bonds of, loans upon at Federal Reserve Banks, 153. Washington — special representatives of trust companies at, 236. Watchman, 450. Wills, 13, 296, 399; book, 348; register of, 297, 298. Withdrawals — ' savings department, 414-415; slip, 416; notice, 415-416. Women, in trust companies, 448. FRIlrTBD IN THB UinTED ETATIDB OT AMESIOA lL,l!iiJIIVJJl;!!l!iiiJili! I