It is evident from this survey of the nature of trusts that fiduciary business differs from commercial banking in respect to fundamental principles and technical operations. It is apparent that the legal and personal relation between the trust company and the trustor, or beneficiary, is not merely one of debtor and creditor as exists between a bank and an ordinary depositor. These differences are fully recognized in state laws and federal rulings which subject fiduciary institutions to separate regulations. In conclusion, consideration will be given to the content of this legislation and its underlying principles. Federal and state regulations will not be differentiated in this analysis, since the former to a large degree are based on the latter, and, moreover, the Federal Reserve Board has ruled that a national bank which assumes trust powers must exercise them in conformity with the laws of the state in which it is located.

For the protection of certain classes of trusts, a fiduciary institution is often required to deposit special securities with the state Superintendent of Banking. At times, a trust company is compelled to execute a bond as guaranty that it will act in good faith. In addition to these requirements, fiduciary institutions must usually meet certain requirements of the capital and surplus, which are often higher than those demanded of commercial banks. Government examinations are made periodically, and national banks are thus under the scrutiny of both federal and state officers.

An institution conducting a fiduciary and banking business must maintain a distinct and separate set of records for its trust business. Limitations are also placed on the manner in which a fiduciary institution may invest the funds which have been intrusted to it. If the will or deed creating the trust definitely describes the particular security in which the fund is to be placed, this stipulation must be strictly observed by the trustee. But the creator of a trust does not always define the exact character of the investment and leaves this matter to the discretion of the bank directors, who are then expected to exercise due diligence in their selection. When the form of the investment is not specified at all, the state law usually describes the eligible classes. In New York State, trust funds may be invested only in those securities which are legal for purchase by the mutual savings banks.

Part IV