Published online by Cambridge University Press: 31 October 2014
Lax regulation enabled trust companies to take excessive risks, according to previous studies of the Panic of 1907, leading to a loss of confidence and massive runs. These studies have, however, given relatively little attention to the historical development of trust companies. This article argues that a more historical perspective can lead to a better understanding of the institutional framework and the actions of trust companies. Depositors did not lose confidence because of inadequate regulation; depositors lost confidence in specific trust companies because of false rumors, and diversity among trust companies hindered cooperation to halt the Panic.
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16 Brewer, Emergence, 193.
19 Moen and Tallman, “Bank Panic of 1907,” 613.
20 New York Daily Tribune, 18 Mar. 1906, 2.
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22 New York Times, 9 Aug. 1876, 2. Reports are from 1 July 1876.
23 New York Times, 21 Sept. 1873, 1.
24 Independent, 13 Nov. 1873.
25 Brewer, Emergence, 10.
27 Groesbeck and Dickinson, General Banking Laws, 100.
28 Clark Williams, quoted in Bankers’ Magazine, Apr. 1909, 634.
29 Brewer, Emergence, 1.
30 State of New York, Annual Report of the Superintendent of the Banks Relative to Savings Banks, Trust Companies, Safe Deposit Companies and Miscellaneous Corporations for the Year 1897 (Albany, 1898)Google Scholar and New York Times, 9 Aug. 1876, 2.
31 See, for instance, New York Times, 14 Aug. 1898, IMS2; and New York Times, 9 Feb. 1902, WF4.
32 It later moved to the corner of Fifth Avenue and 34th Street.
33 New York Daily Tribune, 12 July 1884, 9.
34 New York Observer and Chronicle, 14 Nov. 1895.
35 Although located uptown, the Commercial Trust Company, founded in 1906 by A. L. Erlanger, of the booking agency Klaw and Erlanger, was more closely identified with the theater district than the residential district.
36 Life, 29 Jan. 1903, 84; and 9 Apr. 1903, 318. The Knickerbocker Trust Company and the Trust Company of America also published advertisements emphasizing personal accounts; see, for example, New York Times, 2 Jan. 1907, 9; and Bankers Magazine, May 1906, 744.
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38 Life, 28 May 1903, 482.
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44 On the Armstrong Investigation of New York life insurance companies, see North, “Life Insurance”; Ransom, Roger L. and Sutch, Richard, “Tontine Insurance and the Armstrong Investigation: A Case of Stifled Innovation, 1868–1905,” Journal of Economic History 47 (June 1987): 379–90CrossRefGoogle Scholar; and Beard, Patricia, After the Ball: Gilded Age Secrets, Boardroom Betrayals and the Party that Ignited the Great Wall Street Scandal of 1905 (New York, 2003), 281–302Google Scholar. The investigation received extensive coverage at the time; McClure's published Burton J. Hendricks’ six-part “The Story of Life Insurance,” in 1906, and Arena published Albert Brandt's “Criminal Wealth versus Common Honesty” in May 1906.
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48 New York Times, 21 Jan. 1907, 13.
49 The Clearing House was originally established to decrease the cost of clearing notes and checks; banks no longer had to settle individually with each bank that they held checks from. Eventually, some clearinghouses began to take on some of the functions of a central bank: regulation, supervision, and acting as a lender of last resort. See Gorton, Gary and Mullineaux, Donald, “The Joint Production of Confidence: Endogenous Regulation and Nineteenth Century Commercial Bank Clearinghouses,” Journal of Money, Credit, and Banking 19 (Nov. 1987): 457–568CrossRefGoogle Scholar.
50 Bankers Magazine, Nov. 1899, 777; and New York Times, 2 Mar. 1906. In some other cities, such as Chicago, both banks and trust companies could be members of the Clearing House. See Moen and Tallman, “Clearinghouse Membership.”
51 New York Times, 22 Oct. 1907, 1.
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57 Letter from Benjamin Strong to Thomas Lamont, 1924, Benjamin Strong Papers, Federal Reserve Bank of New York.
58 New York Times, 23 Oct. 1907, 1.
59 New York Times, 24 Oct. 1907, 3, and 26 Oct. 1907, 3; Evening World, 23 Oct. 1907; and Commercial and Financial Chronicle, 26 Oct. 1907, 1059.
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63 Moen and Tallman, “Bank Panic of 1907,” 620. August 22 and December 19 were dates in 1907 when trust companies were required to provide reports to the Superintendent of Banking.
64 See Herrick, Clay, “New York Trust Companies during and after the Panic,” Bankers’ Magazine 78 (Jan. 1909): 71Google Scholar.
65 The annual report did not state the total number of deposits; it stated the number of deposits upon which interest was paid, but trust companies paid interest on the vast majority of deposits.
66 The exception to the rule is the Title Guarantee and Trust, which experienced a relatively small decrease in deposits; its primary services, however, were title insurance and investments backed by mortgages.
67 New York Times, 12 May 1911, 13.
68 Sprague, History, 255.
70 New York Times, 4 Mar. 1906, 14.
72 The Reserve Ratio is the sum of cash, specie, and deposits at approved reserve depositories as a percentage of checkable deposits reported for August 22, 1907 in State of New York, Annual Report of the Superintendent of Banks Relative to Savings Banks, Trust Companies, Safe Deposit Companies and Miscellaneous Corporations for the Year 1907 (Albany, 1908)Google Scholar.
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77 Letter from Benjamin Strong to Thomas Lamont, 1924, Benjamin Strong Papers, Federal Reserve Bank of New York.
78 For excerpts of the agreements between the Trust Company of America and the Committee of Trust Companies, see United States Congress, House of Representatives, Hearing before the Committee on the United States Steel Corporation, vol. 3 (Washington, D.C., 1912), 1669Google Scholar.
79 Hearing before the Committee on the United States Steel Corporation, vol. 3, 1678.
80 Wicker, Banking Panics, 111.
81 New York Times, 28 May 1904, 13. The Association was established in 1904 to address mutual concerns of the trust companies.
83 New York Times, 23 Oct. 1907, 1.
84 New York Tribune, 23 Oct. 1907, 2; see also, Commercial and Financial Chronicle, 26 Oct. 1907, 1060.
85 New York Times, 11 June 1912, 11.
86 Letter from Benjamin Strong to Thomas Lamont, 1924, Benjamin Strong Papers, Federal Reserve Bank of New York.
87 Commercial and Financial Chronicle, 26 Oct. 1907, 1061.
88 New York Times, 24 Oct. 1907, 1.
89 Commercial and Financial Chronicle, 26 Oct. 1907, 1019.
90 New York Times, 6 Nov. 1907, 1.
91 Clark Williams, quoted in Bankers’ Magazine (Apr. 1909), 634.