Attention of State banks and trust companies will be directed for the present toward the possible result of the investigations of a subcommittee of the New York Clearing House now working upon the question as to the advisability of advocating a further step by that body. It is sincerely to be hoped that this committee will come out squarely for a clearing house method of country check collection which will give trust company and State bank members the same facilities as may be enjoyed by National banks through the Reserve bank. It may be regretted that there will thus be two systems of collection instead of one, but are not two systems better than a hundred systems as at present in New York, with every bank operating its own independent machinery?

While the system employed since 1899 by Boston and later by several other Clearing Houses, notably Kansas City, has been a great time, labor, and expense saver in which all benefited, even further economies are possible. These are suggested by the plan proposed by the Reserve banks and the parallel plan to be tried out in Georgia. Briefly, it is that country banks within a limited territory should send their checks not to individual banks in the city, but direct to the Clearing House. After the proper assorting, crediting and charging is completed and the checks are mailed out by the Clearing House, the resulting debit and credit balances are adjusted by the Clearing House with the local Reserve agent of the country bank. With this system in operation the result would be a sort of combination of all the transit departments of the city banks in one place with the physical handling of the checks, and the consequent bookkeeping and

other, labor reduced enormously.

It is difficult to understand how any banker with sound business ideas could object to such a proposition.

Within a relatively short period there must come readjustment since most of the present systems of check collection are based upon reserve balances in city banks. When these are largely transferred to the Reserve banks new arrangements will need to be made. Therefore, it is certainly the part of wisdom for State and National banks to get together and arrange to collect checks in the most inexpensive manner. Then when such a system has been fully developed and in good working order there is no good reason why the operation of the machinery should not be fully taken over bodily by the reserve banks. They will always have the whip-hand, so to speak, in domestic exchange operations on account of the facility of the gold settlement fund at Washington and the advantage of being able to make transfers of credit by letter or telegraph at the minimum of expense.

The trust company and State bankers should, therefore, take hope. It is for them to say whether or not they will be at a disadvantage with National banks in the matter of check collection. It should be a matter of some regret that legislation was needed before any concerted action was taken by bankers to correct abuses that could no longer be tolerated. Let us hope that the lesson has had the right effect and that the day of the further extension of the clearing principle has arrived. Had there been a country Clearing House in New York in 1907, there would have been another in every large center in the country, and there

would have been no check collection provisions in the Federal Reserve Act.

It is not intended that the opinions and conclusions here expressed should be construed as indicating views antagonistic to the system of check collection proposed by the Reserve banks. Our position is rather that expressed by the Guaranty Trust Company of New York in its recent letter outlining a plan whereby non-member checks might enjoy modern collection facilities pending a final decision by State banks as to their joining the Reserve system. There are two possible considerations relating to check collection that will influence State banks and trust companies in coming to a decision. The first is that they will be at a disadvantage in not being able to use the collection and transfer facilities of the Reserve system directly and the adverse effect this handicap will have upon the checks drawn upon them. The second consideration is that after having established a plan which may counteract the disadvantages mentioned, there will be constant pressure brought to bear in the interests of business efficiency to consolidate the two systems. This will be the easier after country banks have been educated into the advantages of a scientific clearing system by non-member banks as well as by the operation of the Reserve system. It is our belief that the Reserve banks should welcome any outside assistance, even though not so intended, that will bring about this much needed education.

Meanwhile, State banks and trust companies will be entirely justified in co-operating with the National banks in trying to devise and put into operation a plan that is more comprehensive than the present rather limited Federal Reserve collection system.

In a tabular outline of the field of economics "socialism" is properly entered as a sub-division under the general sub-heading "distribution of wealth." The socialist, however, would have you believe that his favorite doctrine and panacea for political and social ills is the fundamental idea involved in any economic discussion. A proper prospective and sense of proportion is rarely to be found among the more ardent propagandists. We find a similar disposition among transit experts at the present time to lay undue weight upon the importance of the check collection provisions of the Federal Reserve Act, and the possible outcome of the collection plan proposed by the Reserve banks. It is not to be denied that the problem of check collection is one of the most important, if not the most important, question confronting bankers today, since it is concerned with the modern method of making payment. The Reserve Act may be defined as a currency measure, but it must be remembered that more

than 90 per cent. of business is done with credit instruments, the presentation and payment of which comprise what we know as the "transit problem." Putting it differently, there is available as exchange media, less than four billions of actual money as compared with more than eighteen billions of bank deposits.

What we are driving at is that the method of collecting checks and drafts proposed by the Federal Reserve Act is but one of several systems proposed. It is an effect and not a cause. That the plan is the ideal one and will ultimately prevail, there is but little doubt among those who are farsighted and well informed. But it is equally true that some preliminary steps are necessary, especially since checks on State banks and trust companies which are as three to two numerically in comparison with checks on National or member banks, cannot be collected through the new machinery. Therefore, it is quite natural that there is a general disposition to revive interest in some plan or plans that include the collection of all checks and thus put the non-member check on an equal footing with the member check, at the same time giving member banks an opportunity to collect checks on non-member banks as expeditiously as items on other members.

Before the new Act was passed there had been considerable agitation on the subject of check collection. The Association of Reserve City Bankers, a comparatively new organization, made it clear at their first annual meeting three years ago, that it was one of the objects of the Association to solve the trying problem of the country check. The Clearing House Section of the American Bankers' Association has been making consistent efforts toward the same end, urging at all times the adoption of the so-called country clearing house. The New York Clearing House amended its rules materially two years ago and indicated that thought was being given to a more advanced plan of country check collection. All these activities were halted by the introduction of the Reserve Act, which as we have indicated, has in no sense originated the present problem but has simply added another possible solution. Very recently there has been organized, in the State of Georgia, a State wide Clearing House to which all banks in the State are eligible. To that extent it may be said to be superior to the facilities offered by the Reserve banks except that it is more limited in its scope.

Three hundred and thirty-five banks and trust companies in the States of New York, New Jersey, Connecticut, Rhode Island and Massachusetts have been placed on the "discretionary list" of the New York Clearing House.

With your letter of March 3, 1915, you enclose a copy of a letter which you received from the First National Bank of Joliet from which it appears that under the rules and regulations of the Federal Reserve Board adopted pursuant to section II, sub-division (k) of the Federal Reserve Act, said bank made application for a special permit to act as trustee, executor, administrator and registrar of stocks and bonds, and that said application is likely to be granted. Said First National Bank of Joliet accordingly has applied to you for leave to qualify under the Trust Act of this State. and for a certificate of qualification. Under the provisions of the Federal Reserve Act and the rules and regulations adopted by the Federal Reserve Board pursuant thereto, National banks may accept and execute trusts in a State only when the exercise of such power is not in contravention of the laws of such State.

You request my opinion as to your duty with reference to said application and this presents the question as to whether the exercise of trust powers by National banks of this State is in contravention of the laws of the State.

I have given the question of the constitutionality of said section II, sub-division (k) of the Federal Reserve Act some consideration, but have concluded that both your department and mine may properly assume said provision of the Federal Reserve Act to be constitutional unless and until it shall have been judicially determined to be unconstitutional. I shall

therefore refrain from discussing the constitutional questions arising upon said provision of the Federal Reserve Act, except as some of them may unavoidably obtrude themselves into the question as to whether the exercise of trust powers by National banks is in contravention of the laws of this State.

(The Attorney-General quotes several Illinois decisions against granting trust power to foreign corporations and continues:)

Foreign Corporations Not Eligible

It is the holding of the Supreme Court of this State, as shown in the above cited cases, that foreign corporations are not eligible to qualify to do a trust business in this State by virtue alone of the act entitled "An Act to provide for and regulate the administration of trusts by trust companies," (approved June 15, 1887, in force July 1, 1887), the Trust Act. As that Act was adopted in 1887 and as amended in 1889, it refers only to corporations organized under the laws of Illinois. It is by section 26 of the general Corporation Act that the Trust Act of 1887, as amended in 1889, is made to apply to foreign corporations, as well as domestic corporations, which come within the terms of its provisions.

What corporations, not domestic, come within the terms of the provisions of said section 26? The Supreme Court in Stevens vs. Pratt, supra, said:

"The manifest and only purpose (of said

section 26) was to produce uniformity in the powers, liabilities, duties and restrictions of foreign and domestic corporations of like character."

What corporations, not domestic, are of like character with the domestic corporations that may qualify under the Trust Act? May National banking corporations be said to be of like character with the domestic corporations eligible to qualify under the Trust Act so as to bring them within the enabling effect of said section 26?

It may be suggested with some plausibility that by the provisions of section 1, of the Trust Act, the only test of eligibility of demestic corporations to qualify under that Act is that they be vested by their charters with the power to accept and execute trusts, and that since the Federal Reserve Act vests National banking corporations with the power to accept and execute trusts, they also are eligible to qualify under said Act.

It seems to me, however, that in order to determine whether National banking corporations are of like character with the domestic corporations eligible to qualify under the Trust Act, so as to bring them within the contemplation of section 26, with foreign corporations organized under the laws of the several States, all of the provisions of the Trust Act must be considered. While National banking corporations assuming them to be vested with the power to accept and execute trusts by the Federal Reserve Act-may come within the letter of section I of the Trust Act, yet the broader question is whether from their status, in view of the source and purpose of their organization, they are of like character with corporations organized under the laws of this and other States and recognized as eligible to qualify to do a trust business in this State under said act, in the sense that they fit into the scheme of the Trust Act and legally and practically may be subjected to the liabilities, limitations, restrictions and duties in the matter of State visitation, supervision and control under the Trust Act.

I do not think National banking corporations are of like character with domestic corporations nor with foreign corporations recognized by your department, pursuant to the decisions of our Supreme Court, as eligible to qualify under the Trust Act; nor do I think National banks are to be regarded or classified as "foreign corporations" within the meaning of that term as used in the statutes of this State relating to foreign corporations, and in the decisions of our Supreme Court recognizing the corporations of other States having the charter power to accept and execute trusts and being of like character with the domestic corporations

recognized by the Trust Act, as eligible to qualify under said Act, and in the decisions of the Supreme Court, above referred to, construing section 26 of the general Corporation Act. In the first place, National banking corporations, unlike the corporations, domestic and foreign, with which our State statutes deal, are not private corporations. They are not created for private purposes or private gain. They are created by Congress for a public purpose of the National government. The government of the United States is one of delegated, limited and enumerated powers. It can claim no powers which are not granted to it by the constitution; and the powers actually granted must be such as are expressly given, or given by necessary implication. Martin vs. Hunters Lessee, I Wheat., 304; McCulloch vs. Maryland, 4 Wheat., 316; Gibbons vs. Ogden, 9 Wheat, I. (A number of court decisions are quoted to sustain these views.)

From these considerations and the authorities cited and quoted, I think it is apparent that National banking corporations are not of like character with the domestic corporations contemplated by the Trust Act, nor with foreign corporations which the Supreme Court of this State holds to be eligible by virtue of section 26 of the general Corporation Act to qualify under the Trust Act.

What Are "Foreign Corporations"?

I do not think National banks are to be classed as foreign corporations within the meaning of said section 26. Our Statutes do not define the term "foreign corporations." The statutes of a few of the States define "foreign corporations" as all corporations not organized under the laws of such States, and under such statutes so defining the term, it has been held that corporations created by Act of Congress are foreign corporations. So far as I have been able to find, the cases holding National banks to be foreign corporations are based upon the particular wording of certain statutes, or for some particular purposes, and are not authority for the general proposition that corporations created by Congress are legally classed as foreign corporations. There are not many authorities on the question. The most enlightening discussion of the question I have found is in the opinion of the court in the case of Commonwealth vs. Texas and Pacific Railroad Company (98 Pa., St., 90).

The provisions of the statutes of Pennsylvania under which the question arose in said case was the 16th section of the Revenue Act of June 7, 1879, which provided that no foreign corporation, except foreign insurance companies, etc., should have an office in the com

monwealth for the use of its officers, stockholders, agents or employees without first having obtained from the Auditor-General a license to do so, for which license every such corporation was required to pay annually onefourth of a mill on each dollar of the authorized capital stock of such corporation.

The State of Pennsylvania, in the case above referred to, sought to compel said company, which was a corporation organized by Act of Congress, to take out a license and pay a license fee as a condition to its continuing to do business in Pennsylvania and to otherwise comply with the requirements of the Act of that State relating to foreign corporations. The Court of Common Pleas held that the corporation was not liable for the tax for the reason, among others, that it was not a foreign corporation within the meaning of the Foreign Corporation Act. * * *

There is nothing in said section 26, nor in any other statute of this State relating to foreign corporations, which indicates or suggests that corporations created by Congress for certain public purposes of the National government are intended to be within the meaning of the term "foreign corporations" as used in said statute, and I have no idea such statutes would be construed by the courts as having any reference to corporations created by Congress to serve the public purposes of the Federal government.

Under authority of section II, sub-division (k) of the Federal Reserve Act, the Federal Reserve Board on February 15, as I am advised, issued regulations or rules to govern National banks in exercising the right to act as trustee, executor, administrator or registrar of stocks and bonds. *

Power of Visitation and Control

Visitation, supervision, regulation and control by the Federal Reserve Board is provided for, and even if it be assumed that under the Constitution of the United States Congress has the power to say whether and to what extent State laws shall govern in the matter of the devolution of property within a State, the administration of estates and the visiterial, regulatory and supervisory powers over trustees of property in the State (all of which would seem upon unquestioned authority to be denied to Congress and exclusively committed to the States), yet there is nothing in the Federal Reserve Act nor in the regulations of the Federal Reserve Board which may be construed as requiring National banks, in their trust departments, to submit to State visitation, regulation, supervision and control.

The Illinois Trust Act vests the Auditor of Public Accounts with visitorial and supervisory

powers and duties which are important and far-reachng. It is unnecessary to recite the powers and duties of the auditor with reference to visitation, regulation, supervision and control of corporations accepting and executing trusts in this State. The statute vests the auditor with vast and important powers for the purpose and to the end of protecting the people of this State and their property interests against the disasters of incompetency and dishonest, reckless, careless or unbusiness-like methods in the administration of the important trusts committed under the Trust Act. Armed with such powers, he is charged with the duty and responsibility of seeing to it that the banks accepting and executing trusts and acting in a fiduciary capacity in the State are held to a strict accountability for the faithful administration of all trusts of every character committed to them.

If Congress has the power to vest a corporation of its creation, such as National banks, with the power to accept and execute trusts, the State certainly would be without power to impose upon such National corporations with visitorial, regulatory, supervisory and controlling powers which the State statute vests in the Auditor of Public Accounts.

The assumption by the Congress of the power to vest National banking corporations with the power to accept and execute trusts and the provision in the rules of the Federal Reserve Board for the exercise by that body of visitation, regulation, supervision and control of the trust departments of said National banks is wholly inconsistent with the exercise of such powers by any State department or official.

If it be said that neither the Federal Reserve Act nor the rules of the Federal Reserve Board makes said board's powers of visitation, regulation, supervision and control exclusive, and that National banks may and will submit to State visitation, regulation, supervision and control of their trust departments, the answer suggests itself that such submission would be voluntary on the part of National banks and. the result would be in each State a dual system of visitation, regulation, supervision and control and as to State supervision would result in as many different schemes of supervision as there are States in the Union. Such a scheme would result in a conflict between Federal and State authorities.

It has been asserted by counsel for National banks in this State that the rules of the Federal Reserve Board contemplate and, in effect, provide for State visitation, regulation and supervision of National banks and their trust departments and, failing to point out any such provision, suggest there is nothing in the Fed