SIGNIFICANCE OF BANKING SITUATION IN COLORADO 6 1 



reserve is required to be maintained by trust companies, nor is there 

 any limit to the amount they may loan to one person. The result of this 

 is the encouragement of an unhealthy competition to get deposits. The 

 companies pay too high rates of interest on balances and the banks are 

 compelled to meet this competition in order to retain their patrons. It 

 is said that trust companies sometimes borrow on collateral and reckon 

 the sums so received with their deposits in order to make a more favorable 

 showing, and in this way attract more trust funds. The concerns not 

 subject to inspection are more likely to resort to schemes of this nature. 



In the state of New York supervision of trust companies was instituted 

 in the year 1874. The first year of its operation three trust companies 

 which had been conducted in a dangerous and illegal manner were com- 

 pelled to suspend operations. $6,000,000 of deposits were paid out 

 in full to their owners.^ Had no state examinations been made and 

 only reports of the officers of these institutions been depended upon, the 

 three companies might have gone on till a much worse condition pre- 

 vailed and the depositors might have lost a large part if not all of their 

 money. Before state examinations were begun in New York trust com- 

 panies had seldom failed whose recently pubhshed statements did not 

 show a surplus.^ 



There is a pronounced movement in the United States toward bringing 

 trust companies engaged in the banking business under the same law 

 that applies to banks. The bank examiner as a rule examines trust 

 companies as well as banks and the time is not far distant when the two 

 institutions will be regulated by the same law as far as the business of 

 banking is concerned. 



As an indication of the latest tendencies in bank and trust company 

 legislation these acts passed by the last legislature of the state of New 

 York are important : 



1. Overdrafts are prohibited to officers, directors, and employees of 

 banks and trust companies. 



2. Commission is denied to an officer or director of a bank for pro- 

 curing loans from that bank to any corporation. 



■ Bankers' Magazine, New York, Vol. LXI, p. 787, 1900. 



' Gator, "Trust Companies in the United States," Johns Hopkins University Studies in Historical 

 and Political Science, Series 20, Nos. 5-6, May-June, 1902, p. 53. 



