Herald and news. [volume] (West Randolph, Vt.) 1878-1943, 1907-11-07
eLESSON FOR VERMONT.

/ II has doubtless been noted that practi-
cally all the financial institutions that
suspended during the recent panic in
New York city and elsewhere were trust
companies. The national banks and the
savings banks were not seriously affected.
In fact, they came to the rescue of the sit
uation, and by bolstering up the lettering
trust companies put bounds on the dis
tur bance before it had spread far. The
national nd purely savings banks en-
countered little distrust on the part of
| their depositors, while the depositors in
trust companies ran wild with fear,
much of which was needless.
This panic started, it is generally
agreed. as the result of reckless specula-
ton by the owners or officers of certain
trust companies, in which funds of the
banks were lost, depicting the surpluses
and giving alarm to depositors. The
question is naturally asked, why was this
done. or allowed 10 be done? And what
future safeguard is there against recur-
renee Of the trouble?
The laws in New York are quite liberal
with regard to the nature of bank loans
and investments. 1t is lawful to do
things there that it is not lawful to do in
Vermont or other states. Thus in New
York banks may loan on certain approved
railroad, mining and industrial stocks,
whereas such thing is not permitted in
Vermont, though effort has been made in
the past to legalize holdings OF this ma
ture.
The form of organization of a trust
company and its scope and purpose are
such as to justify close limitation of its
loan field and careful oversight ny state
officials. The trust company IS unlike
national bank, in that it may loan on
real estate, as well a paper or collateral.
and the responsibility Of the company to
its depositurs extcnis only to the amount
OF its capital stock and accumulations,
while the stockholders in national bank
may be personally assessed to an amount
equal to their stock holdings, if required
to make she bank depositors whole. in
case Of disaster. Again, the trust COM
pany differs from the savings bani, in
that it is a business enterprise, conducted
primarily for the pecunia-y benefit Of its
stock holders. The purely savings bank
has no stockholders, but is mutual in it,
system.
The trust company, organized with a
capital stock of S25, 900 to 500, 900, solic-
its deposits, agreeing to pay tine current,
or a specified, rate of interest. The
stockholders loan this money to the best
advantage, and all that is cleared above
the interest is theirs to divide. Savings
banks, on the contrary, have nothing to
gain, so far a. the self-interest of stock
profits go to the depositors, after salaries
and expenses are paid. There il, there
fore. 10 temptation on the part of savings
bank officials toward reckless finance for
there is nothing in it for them if they
win, and no call for taking the risk.
With a trust company, this is naturally
otherwise, inasmuch as a successful coup.
even on long chances. brings net results
to those who take the chance-with
other peoples money.
We are not critcising the trust com
pany idea, or exalting the national and
savings banks. Each system has its
strong points and forms a needed link in
the chain. But the point we make is
that trust companies, by their very theo-
~, invite the closest regulation by law
and oversight by state. In Vermont this
is done, and our trust companies not only
thrive, but enjoy thorough confidence.
Were the tether TO be loosed, however,
Vermont trust companies might ere long
be in the same situation as those of New
York. Unwise liberty to speculate with
other peoples money for self interest gem
orally brings one result.