banks engage essentially in commercial business and only incidentally operate a savings department. At first trust companies and later state banks were allowed to receive savings deposits in addition to carrying commercial accounts. National banks refrained from accepting savings deposits, for it was believed that this power was not granted under the National Bank Act. In 1903 the Comptroller of the Currency expressed the opinion that while a national bank was not specifically authorized to accept time deposits, nevertheless this step was not expressly prohibited by the National Bank Act. The question was definitely settled in favor of the national banks by the Federal Reserve Act, which recognizes a savings department in Section 19, defining deposits as follows: "Demand deposits within the meaning of this act shall comprise all deposits payable within thirty days, and time deposits shall comprise all deposits payable after thirty days, all savings accounts and certificates of deposit which are subject to not less than thirty days' notice before payment." This definition has practically the same force as an authorization to accept savings deposits, and accordingly many national banks now operate such departments.

3. Guaranty-fund Banks.

Another type of savings institution is the guaranty-fund bank which prevails in New Hampshire. It combines several of the essential features both of the mutual and of the stock banks. In common with the mutual type, the guaranty bank handles no commercial accounts and its funds are derived from savings deposits. The distinctive feature of the guaranty bank arises from the division of its deposits into general and special. The general deposits bear a definite rate of interest, and therein are unlike mutual savingsbank accounts, whose yield is a dividend dependent upon earnings. After interest has been granted on the general deposits in the guaranty bank, the remaining sum is paid on the special deposits. These serve as a guaranty fund for the general deposits in the event of non-payment of interest or principal. In return for higher earnings, the special

depositors assume a proportionately greater risk. In a way, general deposits of the guaranty bank resemble preferred stock of a corporation, and special deposits may be compared to common shares.

4. Co-operative Associations.

The co-operative savings institutions, such as the building-and-loan association and the credit union, have been described in Chapter III.

5. Public Savings Systems.

The postal savings system aims to encourage thrift by offering a secure depository for savers through the mechanism of the government post office. This was the subject of active discussion following the close of the Civil War, and met with considerable opposition. Proponents of postal savings believed that the government post-office stations would become feeders of the banks by directing public attention to the importance of thrift. They also said that the plan would attract funds ordinarily hoarded by immigrants and others through mistrust of privately owned banks. This contention received added strength in 1907, when the panic caused heavy withdrawal of savings deposits.

Finally, in 1910 Congress passed the Postal Savings Act. It provides for a board of trustees consisting of three Cabinet officers (the Postmaster-General, Attorney-General, and the Secretary of the Treasury). They are empowered to designate post offices as depositories of savings, and in general to administer the system. The Act regulates deposits rather narrowly. They are to be received from individuals alone, and only one account can be held by a person at any time. At first the balance was limited to $500, but later the maximum was raised to $2,500. A saver receives not the usual pass book, but a certificate of deposit, which is non-transferable and non-negotiable. The interest rate on all deposits was fixed at 2 per cent, thus differing from the principle of savings banking, which varies the rate

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according to earnings. These savings funds are invested in United States government securities or redeposited in state or national banks paying 24 per cent on such daily balances and offering satisfactory municipal or other public bonds as security.

In general, the total postal savings deposits have declined and many of the offices have been discontinued. One cause has undoubtedly been the low rate of 2 per cent, which has not appealed to savers in a period of larger general interest rate and higher yielding government war bonds. The lack of progress of the postal savings system may be partly due to the increased facilities offered by the growing number of savings departments in commercial banks.

Postal savings banks have been established in England, France, Italy, and in about forty other countries. Elsewhere in Europe public banks have been conducted by municipalities. In Germany, where no postal savings system exists, banks for savings are operated by almost all the large cities. Local governments have not entered the field of banking in the United States, where a more restricted theory regarding the function of the municipality is held.

Having studied the various forms of private and public savings institutions, it is evident that not all of them are adapted to the economic conditions existing in the United States. Public savings banks, whether federal or local, have made little or no progress. Nor have all privately owned savings institutions flourished, for no rapid advancement has been made either by the co-operative associations or by the stock savings banks accepting only savings deposits. Progress has been shown only by stock banks holding both commercial and savings accounts, and non-stock or mutual banks receiving only savings deposits. While the changing economic conditions since 1914 have affected the amount of these savings deposits, they were considerably augmented during the wave of prosperity in 1919, and they were not impaired by the depression in 1920 and 1921. However, savings institutions to-day face certain problems which will be briefly considered.

VII. RECENT DEVELOPMENTS AMONG MUTUAL SAVINGS INSTITUTIONS.

There is an ever-growing competition between mutual savings banks and commercial banks with savings departments. As a result of the struggle for savings accounts, the interest rate has often been forced to a high level. In general, commercial banks have been able to outbid the mutual savings banks, as the latter's investments are restricted by law and their earnings consequently limited. It must also be remembered that mutual savings banks are not operated for profit; hence trustees at times lack this incentive to adopt methods for securing new business. Nevertheless, many of the mutual banks are now following a more progressive policy in order to gather new accounts. Such services are offered as the holding of Liberty Bonds for persons who cannot afford to rent safe-deposit boxes. In Massachusetts, some savings banks conduct insurance departments for the issuing of policies. Mutual banks have practically waived the right of notice before the withdrawal of funds, and thus savings deposits are virtually payable on demand.

In order to meet this change in the nature of savings deposits, it has likewise been necessary to shorten the maturity of certain investments, so that they possess greater liquidity. It has even been proposed to admit mutual banks to membership in the Federal Reserve system. This plan is not feasible, since mutual banks have no capital stock, and cannot as members subscribe to shares in the Federal Reserve banks; also, as they seldom hold eligible paper, they cannot well take advantage of the rediscount facilities.

CHAPTER XXI

TRUST COMPANIES

I. NATURE OF A TRUST.

BEFORE Considering the subject of trust companies, it is necessary first to understand the nature of a trust. For example, A surrenders certain property to B with the understanding that the former retains full benefit of the property, while the latter holds a kind of ownership over it. The first party has such faith that he yields the title of his property over to the second party, who in consequence assumes an obligation which is described as a trust. The party who receives the ownership is known as the trustee, and the giver is called the trustor. The trustor may at the same time be the beneficiary who derives the income or the use of the property in trust. More usually, the beneficiary is a third party-for example, a son for whose education the father creates a fund to be administered by some friend acting as trustee in accordance with the terms of a formal agreement. This illustration indicates all the essential parties and factors in a trust, namely: beneficiary, trustor, trustee, property in trust, and statement of the terms under which this property is to be assigned, administered and finally disposed.

II. INDIVIDUAL AND CORPORATE TRUSTEES COMPARED.

There are individual or corporate trusts, depending upon the nature of the trustors who have created them. Trustees are not necessarily real persons, for corporations may be designated in this capacity. In fact, there are distinct. advantages in having an incorporated organization act as trustee. As a chartered body, it has a continuous existence and so is not subject to the uncertainties which beset the life of an individual. A person's financial strength is usually