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REPORT OF COMMISSIONER.
STATE OF MICHIGAN,
OFFICE OF THE COMMISSIONER OF THE
HON. EDWIN B. WINANS,
Governor of Michigan:
I have the honor to submit herewith my fourth annual report, showing the condition of the State banks and trust companies placed by statute under the supervision of the State Banking Department.
During the four years this department has been in operation, there have been incorporated sixty-nine banks, which, added to the eighty banks which were in existence when the present banking law was adopted, makes the total number of banks that have been incorporated one hundred and forty-nine.
Four of these, viz., Carson City Savings Bank of Carson City, Citizens' State Bank of Au Sable, Gratiot County Savings Bank of Alma, and Montcalm County Savings Bank of Stanton, have gone into voluntary liquidation, and one, the Milford State Bank, has been closed, leaving the total number of State banks in existence today, one hundred and fortyfour, with three trust companies which are also under the supervison of this department.
January 7, 1889, the date of the last report made by the banks to the State Treasurer under the old law, the assets of the eighty banks amounted to $38,963,417.19.
December 9, 1892, the date of the last report called for by this department, the assets of the one hundred and thirty-eight banks and three trust companies reporting, amounted to $82,649,533.48; a gain of $43,686,116.29 in assets during my term of office, which comprises the first four years of the existence of the Banking Department.
I have authorized the incorporation of twenty-one banks during the year, with a total capital of $1,296,000.00.
Of these, ten were new organizations, nine were formerly private banks, viz., Antrim County Bank, Mancelona; Homer Exchange Bank, Homer; Clapp Bros. & Co., Sturgis; Bank of Crystal Falls, Crystal Falls; Hannah, Lay & Co., Traverse City; Exchange Bank (Boies, Eaton & Co.), Hudson; D. H. Power & Co., Fowler; Monroe County Bank, Dundee, and Thompson Brothers, Hudson. Two were formerly national banks, viz., Lansing National Bank, Lansing, now the Lansing State Savings Bank, and the First National Bank of Pontiac, now the First Commercial Bank of
Below find the name, location, date of authorization and amount of capital of the banks incorporated during the year closing December 31, 1892:
Although there has not been a failure of a State bank in Michigan during the year, I am still of the opinion that the banking law should be amended so that delinquent banks could be closed without waiting for the tedious process of law now in force.
My reasons, as urged in my report of last year, I repeat here, as they fully explain the situation:
Section 42 of the banking law says: "Whenever it shall appear from the report of any bank, or the Commissioner shall have reason to believe that the capital of any bank is impaired or reduced below the amount required by law, it shall be the duty of the Commissioner, and he shall have power to examine said bank and ascertain the facts, and in case he finds such impairment or reduction of capital, to require such bank to make good the deficiency so appearing. If any bank shall refuse or fail for ninety days after written requisition to make good the deficieney so appearing or found to exist, it shall be the duty of the Commissioner, with the concurrence of the Attorney General, to institute proceedings for the appointment of a receiver of such bank to wind up its business.
From this section you will see that after ascertaining that the capital of
a bank is impaired, nothing can be done until the expiration of ninety days, and after that the Commissioner must confer with the Attorney General, and then apply to a court of competent jurisdiction for the appointment of a receiver.
Where the officers and directors are honorable men, and the impairment is from causes over which they have no control-which seldom happensthe present law is sufficient; but when a bank's capital becomes impaired by dishonesty or criminal negligence, ninety days, or even the three or four days necessary to obtain an order from the court, is sufficient time for dishonest officers to "loot" the association and dispose of its assets to the damage of the depositors.
I am convinced that the banking law should be amended, giving the Commissioner authority to take immediate possession of a bank, whenever in his judgment the exigencies of the case demand it, and hold the same against all levies and attachments, until a court of competent jurisdiction can be applied to for the appointment of a receiver.
Many bankers object to the vesting of so much power in one individual, claiming that as the office of Commissioner is appointive, some person may be selected on account of personal friendship or from political necessity, rather than fitness for the position, who, through error in judgment or personal antagonism--for a slight infraction of the law-take possession of a bank that was perfectly solvent, injure the reputation of its officers, create a panic among its depositors, and seriously impair if not totally ruin the institution.
Because this could be done, is no argument that it would be done.
That the Commissioner has the power to take possession of a bank, is no proof that he will use that power arbitrarily, or to the damage of an association which is honestly entitled to assistance rather than annihilation, and we do not believe a Governor of Michigan will ever use so important an office as the Banking Department to pay a political debt, or a debt of gratitude.
The unsatisfactory and unequal application of our present mortgage tax law, as applied to banks, demands the careful attention of the Legislature. We admit that the subject of taxation is an intricate one, but I fail to see the justice of taxing the capital stock of the individual shareholder, and then tax the mortgages held by the bank taken with the capital already taxed, or with money deposited by individuals, of which the bank is only the custodian.
In the deduction of mortgages from the capital, which is permitted by the present mortgage tax law, many banks avoid paying taxes on their capital stock, which has caused dissatisfaction in many localities.
No reputable bank desires to evade paying its just proportion of taxes, but objects to the unjust discrimination as between savings banks and commercial banks.
The banking law, for the security of depositors, requires that savings banks invest 51% of their deposits in bonds or mortgages, which, under the present law, the mortgages are taxed as real estate, while commercial banks can loan their deposits on personal or collateral security, which is not taxable to the bank.
It seems to me that the most satisfactory and equitable way is to tax the
capital stock to the shareholder, the real estate to the bank, and exempt mortgages held by the bank from taxation.
When the law infers that the money deposited by individuals, and invested by the bank in mortgages, is the property of the bank and therefore subject to taxation, it lessens the force of the argument for State supervision, which has always been that the bank was simply the custodian of the deposits made by the people, and therefore the State has a right to dictate as to the class of securities taken.
In this connection I desire to call your attention to the necessity of a larger surplus account than the banks are required to maintain at the present time.
The ambition of the average bank officer is to make large dividends to stockholders, rather than to accumulate a surplus which enhances the security of the depositor.
There is no doubt that the excessive taxation of bank shares in some localities has deterred many banks from accumulating a large surplus, or even adding to their undivided profits.
I would therefore suggest that State banks be required to carry to a surplus account twenty per cent of the net profits of the bank for the preceding half year, or for such period as is covered by the dividend, until such surplus shall amount to fifty per cent of its capital stock, and that all surplus up to and including that amount be exempt from taxation.
This will be an inducement to bank officers to accumulate a surplus, and prevent a discrimination in the assessment of bank stock, which at the present time is not uniform throughout the State.
Every banker and business man appreciates the security which a large surplus account guarantees the depositor, and I hope the Legislature will take favorable action in the matter.
Although private banks are not under the supervision of this department, their business and influence in commercial affairs being identical with that of incorporated banks make it necessary that in reporting to you the condition of the banking business of Michigan, I mention the failure of two private banks during the year, viz., O. P. Bills & Co., bankers, Tecumseh, Michigan, who closed their doors Nov. 26, 1892 (liabilities and assets not yet made public), and Church, Bills & Co., Ithaca, Nov. 29; liabilities, $49,402.31; assets, $49,859.27.
These two make ten private bank failures in the State in the four years the present banking law has been in operation.
There are now in Michigan about two hundred private banks. Nearly one-half of this number are using a corporate name, instead of or in connection with their individual or firm name.
I would again call your attention, and the attention of the Legislature, to the necessity of a law preventing private banks using a corporate name in advertising their business.
No reasonable argument can be urged against the adoption of such a law, as it simply prevents irresponsible persons advertising an individual