THE MODERN TRUST COMPANY 433 



ness, because they deal with promises to pay. If a bank dis- 

 counts a note, it creates no capital; the transaction is represent- 

 ed by crediting the borrower in his account with the bank, but 

 no money passes. The net result of the transaction is an in- 

 crease of deposits and an increase of loans, without any increase 

 of capital. These distinctions, however, are in part unreal and 

 in part accidental. There are trust companies — at least, I 

 know of one— which do not receive deposits, and some trust 

 companies discount paper; but in general, trust companies 

 are restricted from a general discount business and the national 

 banking act (apart from particular restrictions in special 

 charters and other state laws) effectually prevents the issue 

 of notes by state institutions. Nevertheless, there is a certain 

 similarity between both branches of business; as all these 

 functions, whether of banks or trust companies, result either 

 in lending or borrowing, so that both sorts of companies bring 

 together the two classes of men into which all the world has 

 been divided, namely, the men who borrow and the men who 

 lend. 



As generally happens, therefore, when definitions fail us, 

 it becomes necessary to describe. A trust company is a 

 corporation under state law with authority to transact business 

 relating to deposits, loans or trusts, and such other business 

 as its charter or general laws may allow. There being no 

 general word to cover these various departments, the term 

 trust company has been seized upon to cover a multitude of 

 functions. Hence, it very often happens that the execution 

 of trusts (properly so called) becomes a small part of the 

 actual business of a trust company, and, indeed, may not be 

 carried on at all. 



This is the case with many of the trust companies in some 

 states, some of which would more properly be called invest- 

 ment companies than trust companies. In most states many 

 so called trust companies are simply large moneyed institutions 

 whose principal business is receiving deposits and investing 

 in large financial operations, such as underwriting or placing 

 issues of securities. 



When trust companies were first incorporated, there 

 was an attempt to indicate by name the kind of business to be 



Vol. 3—28 



