Philadelphia

Special Correspondence

No Demand by National Banks for

Trust Powers

In no other city is the fact emphasized so clearly that National banks and trust companies occupy distinctive spheres of activity and that both classes of institutions may be developed successfully side by side without encroaching, one upon the other. The situation in Philadelphia should serve as an object lesson, particularly at this time, when National banks are offered the opportunity to exercise trust powers under the provisions of paragraph k, section II of the Federal Reserve Act when such grant is not in contravention to the laws of the State. It is therefore significant of the wholesome relations existing between National banks and trust companies in this city that the former are not manifesting any desire to compete with trust companies in their own field as executors, trustees, administrators, etc.

"Even if the laws of Pennsylvania should be amended." said the president of one of the largest National banks of this city, "so as to enable National banks to avail themselves of this privilege I do not believe that we will change our policy. That is the position of all the officers of the other National banks of this city with whom I have talked in regard to this subject. The National banks and the trust companies have been successful in their respective fields of operation; we have worked along harmoniously and profitably for many years and we find that there is room for expansion on both sides without encroaching upon each other's preserves. Why should we depart from such policies? In the first place the National banks could not expect to compete successfully with the fine old trust companies which have acquired the great bulk of fiduciary business. The public has been taught to take that kind of business to the trust company and the latter uniformly avoid trespassing upon our field. At the present time, at least, I see no reason why we should apply for trust powers even if the laws are amended."

A canvas among officers of National banks in Philadelphia confirmed the statement quoted above. The only variation was that the situation might be different in smaller communities where trust company facilities have not been so successfully developed as in Philadelphia. It was also pointed out that if National banks in this city avail themselves of fiduciary powers that the trust companies would be justified in seeking commercial accounts, especially if they become members of the Federal Reserve

bank and desire to have on hand the kind of paper which would be available for rediscount. Up to the present time no trust company in this city has applied for such membership, and there is no indication of any action in that direction for some time at least.

Parker S. Williams, counsel for the Federal Reserve Bank of Philadelphia, has transmitted to Governor Charles J. Rhoads an opinion to the effect that National banks in Pennsylvania are not qualified to exercise the powers of trustee, executor or administrator unless enabling legislation is enacted. The power to act in such capacities is conferred specifically only on trust companies and title insurance companies, and there is no general statute authorizing corporations generally to transact trust business. Counsel Williams furthermore advanced the opinion that the limitation of the Federal Reserve Act regarding real estate holdings would also be inconsistent with the powers necessary to act as trustee.

The opinion given by Counsel Parker also covered the States of New Jersey and Delaware as part of the Philadelphia Reserve Bank district. He held that in New Jersey the powers referred to are specifically granted to trust companies and that the objections exist there

RESOURCES $19,000,000.00

ORGANIZED 1807

also in regard to limitation of real estate holdings. In Delaware there is no general statute empowering corporations to act as trustee, executor or administrator and no general statutes for incorporation of banks or trust companies, each being chartered under special acts. The opinion also sets forth that the laws in Pennsylvania and Delaware will have to be amended before State banks and trust companies can secure membership in the Federal Reserve bank. In New Jersey such enabling legislation was passed last April. The interpretation of Counsel Williams is also confirmed by an opinion tendered by Willard C. Fisk, counsel for the New Jersey Bankers' Association, which states in substance that "it is at least doubtful and unlawful" for the Federal Reserve bank to grant a special permit to National banks for the purposes mentioned in so far as the State of New Jersey is concerned.

Applications to the number of over 40 have been received by the officers of the Federal Reserve Bank of Philadelphia, mostly from National banks in smaller cities of the district, for authority to exercise trust powers. In the New Jersey legislature a bill has been introduced to enable National banks to exercise trust powers. Hearings have been arranged for and trust company interests propose to protect their exclusive rights. Similar legislation is also to be urged at Harrisburg. It is doubtful, however, that these bills will receive favorable action at the present time owing to the questions of constitutionality involved. The language of paragraph k, section II of the Federal Reserve Act clearly indicates that the State legislatures have the exclusive right to permit or prohibit such trust powers. It is pointed out that if this section should be declared unconstitutional by the United States Supreme Court, on the ground that Congress has no power to delegate trust functions, the National banks may be placed in the position of incurring needless expense.

Some New Aspects of Export Trade The Franklin National Bank, in its "Digest of Trade Conditions" for March, says: "While in the tremendous increase in exports of manufactured goods, we find the greatest reason for business encouragement, there have appeared within a month many factors evidencing a steadily but surely improving situation. Taking out of our December exports of manufactured goods almost at random $20,000,000 worth of articles, we find that in that $20,000,000, we exported nearly $6,000,000 worth of American labor. When we export in a finished article a certain percentage of American labor, we are losing nothing and gaining everything. This export item of $6,000,000 in labor is worth more to us than the export of $50,000,000 worth of wheat, as we have, in the manufactured export, exported the factory labor on the finished article as well as the labor of the mine, the field or the forest in the raw material which entered into the manufactured article. It is not in the volume of business but in the nature of the business we are doing that we should find great comfort and satisfaction. In our domestic and foreign sales of the past sixty days, we find an absolute assurance that conditions have been steadily improving since December Ist with good prospect of the improvement continuing throughout the year."

The irard National Bank has been approved as res e agent for the Exchange National Bank of Marietta, Pa.

Colonial Trust Company stockholders at a special meeting March 15, voted to change the by-laws so that the terms of some directors will be longer than a year.

The majority of the banks and trust companies of this city have signified their acceptance of the demands of the mayor, to pay 21⁄2 per cent. per annum from March 24th on all. city deposits.

Philadelphia banking judgment is proverbially conservative and sure-footed.

Our bankers are not prone to indulge in fanciful predictions, but at the same time, when the skies are overcast they are always able to see the sunlight beyond. Last fall, when everything was at "sixes and sevens," Philadelphia bankers calmly and without the slightest misgivings set to work to restore order in the financial household. The evidences of dislocation in exchanges and credits have long since disappeared. A summary recently issued by the National Currency Association of Philadelphia showed that local banks availed themselves of not more than one-seventh of the amount of emergency currency which they might have taken out under the amended Aldrich-Vreeland Act. Since October 20th when the maximum emergency currency outstanding was $14,885,750 the process of redemption was rapid and the notes have all been retired. By way of contrast the National banks here now report the largest excess reserve in the history of local banking. Toward the close of February the surplus reserves were in excess of $31,000,000. Accumulation of deposits and other idle funds makes the chief problem now one of keeping funds profitably employed. The same is true of trust companies which find some relief for this congestion by placing funds in short-term securities.

a

.

Bank clearings, however, clearly show that business is still slowly wending its way toward normal. During February the Philadelphia Clearing House reported clearings amounting to $577,079,034 as compared with $661,545,000 for January and $645,218,849 for the corresponding month last year. Despite this evidence of only partial recovery there are developments of more encouraging nature. The building industry is showing renewed activity. The army of unemployed is being steadily reduced and in certain manufacturing and mercantile lines the orders are increasing in volume. On the Stock Exchange, despite "war zone" influences, prices have been fairly maintained and there is a healthy demand for high grade securities for investment. It is significant of the prosperous condition of the trust companies that their shares are in active demand and that market quotations show steady enhancement in price.

Trust companies of Philadelphia earned 15.60 per cent. on their capital during the period from February 20, 1914, to January 25 last. On capital and surplus combined their earnings averaged only 6.21 per cent. Total earnings reached $6,911,413.

Excellent Earnings by Commercial Trust Company

The management of the Commercial Trust Company observes the commendable policy of making very complete and full statements to stockholders. The report tendered at the fifteenth annual meeting is a model of what such a statement should be. It shows that despite the unusual changes in the financial barometer during the latter half of 1914, due to the European war, earnings of the company were not impaired. Net earnings for the past fiscal year amounted to $224,322 as compared with $236,762 for the previous year. Although a number of accounts were closed last April when the company increased the average deposit balance on which interest is paid from $100 to $3,000 there was a net gain of 67 accounts. Depreciation in security values, which affected all standard issues, was responsible for charging off a total of $533,493 for depreciation on bonds and stocks and on corporate and other loans. The surplus was thereby reduced $500,000, leaving $1,500,000 in that account with undivided profits of $103,686 and capital of $1,000,000. The total resources were $14,468,781. Officers were re-elected and the following directors elected for a term of four years: William H. Barrett, Harry A. Berwind, Henry W. Biddle, Howard S. Graham, L. E. Johnson, J. R. McAllister and C. Stuart Patterson.

Ten Million Deposit Gain by Philadelphia National

An increase of nearly $10,000,000 deposits is shown in the March 4th official statement of the Philadelphia National Bank, when compared with the report of December 31, 1914. During that short period individual deposits increased from $37,278,045 to $43.505,291 and bank deposits increased from $19,005,226 to $22,517,963, making the aggregate on the later date $66,023,254. Combined resources show an increase from $66,974,416 to $78,113,061 with loans and discounts of $43,991,610, due from banks $9,059,499, cash resources $20,828,966 and $4,232,985 customers' liability under letters of credit and acceptances. The capital stock is $1,500,000, surplus and net profits (earned) $5,061,777 which represents an increase of $177,107 since the first of the year.

Both branches of City Councils have adopted an ordinance providing for a municipal loan of $6,000,000 to be applied toward construction of additional transit facilities.

The Farmers & Mechanics National Bank has been approved reserve agent for the Essex National Bank, Essex, Conn.

Boston

Special Correspondence

The Mania for Restrictive Legislation Criticism of State legislatures which attempt through arbitrary and restrictive amendments to impair the legitimate activities of corporations, including banks and trust companies, may be somewhat tempered when we consider the bad example which Congress has set before the country. Not so many years ago new legislation in this State had to pass the acid test of practical requirement. The judgment of responsible men of business, of bankers and trust company officials was frankly solicited. The arguments which they advanced were accepted in a spirit of honest co-operation and with a view to increasing the efficiency of financial and banking corporations. But lo, it is difficult now to fathom the depth of the breach between legislators and business interests. Facts are pushed aside to make a way for fine spun theories. Bills are advocated in the much abused name of "reform," which only serve to surround every enterprise and 'established financial institution with barb wire entanglements.

Taking their cue from the wise men on Congressional Hill in Washington the reform contingent on Capital Hill have again brought out their heavy legislative artillery. Although no occasion exists in Boston or in this commonwealth for such action a bill has been introduced which provides that "no trust company shall have as a member of its board of directors any director in any other trust company or in any National bank located in the same city or town." It also provides that "no trust company shall have on its board of directors a private banker or any person who is carrying on the business of selling securities or commercial paper, or any business which is similar to the purposes for which trust companies are organized."

Among those who appeared in opposition to this and other pending bills were Arthur B. Chapin, vice-president of the American Trust Company, W. H. Rands, vice-president of the Commonwealth Trust Company, E. A. Stevens, vice-president of the Massachusetts Trust Company and E. A. Pillsbury of the United States Trust Company.

Another bill which has again made its appearance after having been twice defeated at previous sessions, known as the "Tinkham Bill" is also drastic in its requirements. It prohibits officers, directors or employees of trust companies from receiving any fee, commission or other form of consideration for or on account

of any loan, purchase, sale, payment, exchange or transaction with respect to stock, bonds or other investment securities or notes, loans, bills of exchange, acceptances, bankers' bills, cable transfers or mortgages made by or on behalf of the trust company with which such officer, director or employee is associated.

Trust companies appear to have become the special object of legislative solicitude. Senate bill No. 249 requires trust companies to give the Tax Commissioner the names of all persons depositing coupons for collection in order that the tax official may notify the local authorities and have taxes assessed on the bonds which these persons hold. At the present writing it does not appear as if this bill will receive favorable consideration. Another Senate measure aimed at the trust companies is bill No. 292, which is intended to prevent trust companies in their trust departments, or other trustees, from investing in the stocks of National banks or trust companies. The committee has reported leave to withdraw the bill.

Such legislative solicitude is inexplicable in the light of the fine record for safe conduct of business and stability made by the trust companies in Massachusetts. It is only another example of the blighting influence of legislative theories which are supposed to correct ills which are largely imaginary.