Trust Company

Trust Company

A trust company is the only legal entity that can act as a trustee by holding property in TRUST for such functions as executors, trustees and administrators of estates, personal trusts, PENSION plans and MUTUAL FUNDS. It can also act as a financial intermediary to attract savings and invest these funds in MORTGAGES, securities and loans. The first Canadian trust company began operations in 1882 and by 1900 there were 14. Spawned by entrepreneurs, and encouraged by the government in an attempt to separate commercial banking and trust services in order to avoid any CONFLICT OF INTEREST, they prospered with the nation as a whole. In the 1990s, however, a combination of factors radically altered the industry.

The trust companies had expanded their quasi-banking operations, designed originally to attract savings and term deposits to fund mortgage lending, into complete banking facilities for both individuals and businesses as regulatory changes allowed. In the process they became, in many areas, indistinguishable from the banks at a time when the financial marketplace was expanding and changing rapidly in a very competitive environment. In the 1983 to 1985 period, 6 trust companies failed due to inadequate regulation, bad lending practices and, in 3 cases, criminal acts. The collapse of 6 more trust companies and the bailout of others in the 1991 to 1995 period were largely the result of poor management and major loan losses.

Other companies were unable to adjust to the changing nature of the industry or adequately exploit profitable business niches. The result has been a major consolidation of the industry with fewer surviving small trust companies and all the large ones coming under the ownership of major banks or corporations. In most cases, the trust companies that became subsidiaries of banks or banking type operations transferred their banking operations to parent companies and reverted to their original role of providing mainly trust services. Of the remaining 56 trust companies, 10 are now bank subsidiaries, 8 are life INSURANCE company subsidiaries, 11 are CREDIT UNION subsidiaries and 27 are owned or controlled by corporations.

See also BANKING.