3. Bank Of Discount

The bank of discount has been defined at the beginning of this chapter. The national banks are the best examples of this class of financial institution. The National Bank Act authorizes the board of directors to exercise all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this title.

4. Trust Company

The usual functions of a trust company, according to Kirkbride and Sterrett, are Banking in a more or less limited form, execution of corporate trusts, execution of individual trusts, care of securities and valuables. In addition, other functions are sometimes exercised, such as life, title, and fidelity insurance, and the business of becoming surety. The earlier companies in the United States were chartered to manage individual estates only and to act in certain fiduciary capacities; the recent development of the trust company has been in the direction of banking functions and corporate trust business.

Banking and the trust business are combined under one corporation in some states, and in others the trust companies have encroached upon the legitimate field of the bank of discount by bidding strongly for demand deposits and investing a large percentage of their funds in bills receivable under the guise of bills purchased.

Said a speaker at the convention of the American Bankers' Association at Milwaukee in 1901:

One of the most conspicuous functions of our trust companies, apart from such as are technically fiduciary, is to gather together, whether through interest-bearing accounts, certificates of deposit, debentures, or otherwise, the long-time funds of the community, and those which are not regularly needed in the quick turn-over of daily commerce, and to lend them, on the pledge of securities, on mortgage, or in some equally safe manner, to those who require cash for legitimate speculation, or who, in construction or development, or with a view to family settlements, must expend an amount of money which cannot be prudently withdrawn from business operations or obtained, without inconvenience or disadvantage, from the outright sale of real property or of special investments.

A combination of the legitimate operations of commercial and savings banks, together with other kinds of business not allowed to either, constitutes a trust company business. The trust company should enter into the field of the commercial banks only as far as is necessary to transact its business. The further it is removed from the commercial bank, the more dignified will be its trust business. Ultimately it will be more profitable.

5. Savings Bank

A savings bank is a banking institution, organized for the purpose of gathering together the small savings of the community in which it is located and investing them in such interest-bearing obligations as are prescribed by law; the interest so earned to be divided among the depositors, after payment of expenses, providing for amortization of premiums on bonds and reserving reasonable amounts for accumulation of a surplus. In New York State, the savings banks have no capital, the depositors being the owners of all the assets of the association.