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COLLATERAL DEPOSIT COMPANIES.
There have been organized during the year three companies known as Safety and Collateral Deposit companies, under the provisions of Act 240 of the Public Acts of 1907. These companies have filed with the State Treasurer the necessary bond required by law.
The companies organized are as follows:
Detroit Safety & Collateral Deposit Co., Detroit, capital $100,000. Security Safety & Collateral Deposit Co., Detroit, capital $100,000. Union Safety & Collateral Deposit Co., Detroit, capital $100,000.
AMENDMENTS TO BANKING LAW.
With one or two exceptions every recommendation contained in the annual reports of the Department during my tenure of office have been enacted into law by the Legislature. A majority of these recommendations were concurred in by the Michigan Bankers Association, which association through its executive committee actively assisted in the pas sage of the amendments. Aside from repealing many sections of the law which had become obsolete, the following is a brief reference to such amendments:
Requiring an examination of each state bank once every six months by the directors, or a committee from among their number; the report of such examination to be spread upon the directors records and forwarded to the Banking Department.
Requiring the directors to meet monthly.
Examination and authorization of loans and investments made by officers since preceding meeting and requiring a complete record of such meetings entered upon bank record book and signed by president and secretary.
Increasing Commissioner's and Deputy's salary from $2,000 and $2,500 to $2,500 and $3,500, respectively; placing examiners on a graduated scale, with a minimum and maximum salary of $1,700 and $2,000, respectively.
Providing for the rehabilitation of an insolvent bank by its stockholders and its restoration to them by the receiver.
Providing for the appointment of the Commissioner of Banking, Deputy Commissioner, a State Bank Examiner, or some other suitable person, as receiver of insolvent institutions, having for its purpose the prevention of protracted and long drawn out receiverships of state banks. This amendment provides that when anyone connected with the State Banking Department is appointed receiver, the salary shall not be in excess of that paid him by the State while in the Department. The benefits accruing from this amendment will be obvious to those already familiar with the history of receiverships.
Prescribing a penalty for not separating commercial and savings investments and reserves in banks combining both classes of business. In this connection I desire to say that Michigan is one of the few states requiring an absolute segregation of deposits. While the Michigan law always required adequate investments of savings funds in specified bonds or real estate mortgages, it was not until 1909 that the law was amended making mandatory the absolute separation of investments of savings
the principal objections advanced was that there would be insufficient available funds with which to carry on the business machinery of the locality, providing the larger part of the savings deposits were required to be invested in bonds, mortgages and other suitable securities. So far at least as Michigan is concerned, this objection is not well founded, and in this connection I desire to submit the following figures:
It will be seen by the above figures that the business or commercial demands of the state have not been hampered or put to a disadvantage on account of the operation of this law. The condition as exhibited by the report of January 31 showed that the mortgage and bond investments exceeded the requirements $21,293,817.01. This report also shows that if it were necessary the banks of the state could have loaned of the savings deposits, for trade purposes, $55,354,596.09. That the needs of the commercial world were not encroached upon is evident from the fact that but $32,711,902.72 of savings deposits were used for commercial purposes.
It will be observed from the remaining reports for 1910 that this condition still exists so far as the loaning of savings deposits are concerned, in what may be termed commercial investments.
In making the segregation it has simply resolved itself into the formality of setting aside a sufficient amount of the mortgage, bond and collateral loan investments to equal, with the reserve required, the amount of the savings deposits. In no locality can it be successfully asserted that the procedure has in any way upset business conditions. Particular stress has been laid on the argument that savings depositors under this plan are made preferred creditors in case of a bank's insolvency. Inasmuch as savings banks may in their discretion require depositors to give notice of withdrawal of deposits, it is obvious that the assets purchased with their funds should be set aside solely to meet their demands, for it is clear otherwise they might be forced to await the depletion of the banks' most desirable assets on account of the demands of commercial depositors. An occurrence of this kind happened in the state of Texas, with which every commissioner of banking is familiar, and which was the direct cause of the passage of a law requir ing the segregation of savings deposits from commercial deposits. The defenceless position of the savings depositors, so apparent, seems to make imperative the necessity of such a law in those states at least where banks are permitted to transact both a commercial and savings business. Common honesty demands such protection to those whose claims
law surely cannot be classed as "preferred creditors," inasmuch as the assets acquired by the commercial department of the bank, together with its capital and surplus, may be applied in satisfaction of demand claims.
The segregation plan simply prevents preference to commercial depositors rather than making a preferred creditor of the savings depositor, and requires that each class stand on its own assets and without preference to either.
The ruling of the Department has been that the savings investments, together with the savings reserve, must equal the amount of the sav ings deposits, and in this regard I would again call your attention to the above table which shows that the banks have more than complied with the requirement.
RECOMMENDATIONS AS TO LEGISLATION.
As mentioned in previous annual reports, another requirement of the law would seem to be advisable, i. e., making it necessary that a majority or quorum of the board of directors reside in the city, village or township where the bank is located. Where the majority of the directors are non-residents, infrequent and irregular meetings are the result, and, in consequence the directors are not as fully informed of the bank's affairs as would otherwise be the case.
The banking department can only exercise its functions in the detection of violations of the law, so far as that is possible, and require compliance with it. The duty of the board of directors is to see that no violations of the law occur and to safely and honestly transact the bank's affairs. The history of bank failures in Michigan shows that in almost every instance the inactivity of the directors was the rule rather than the exception.
I also desire to refer to former recommendations with reference to trust companies of Michigan. The present law authorizing and regulating the business of trust companies should be entirely repealed and another law passed, more specifically prescribing their rights, powers and limitations. As at present it is difficult to know what business such a company may not do, and what investments it may not make. Trust companies receiving money on deposit should be required to carry the same reserve that savings banks now do, and the same authority should be given the Commissioner of the Banking Department as to their supervision which he now has over banks.
UNSAFE PROMOTIONS OF STATE BANKS.
The prosperous conditions of the past few years have made the en
Money has been plentiful among all classes, and the ease with which meritorious business transactions and organizations were financed has drawn the attention of professional promoters, and their operations have not by any means been confined to any one line of business or commercial activity. The extent to which the insurance business has been exploited is an example. In other states the matter of bank promotions by persons looking for commissions only has called forth comment from many conservative and experienced bankers. Michigan has not entirely escaped.
The methods of the promoters cannot be too severely criticised, for experience shows that after banks have been thus organized and the promoters paid their commissions they are left to struggle along, regarded as unstable and hampered in their development and future, the promoters being little concerned with ultimate results.
I mention this only for the purpose of calling attention to the inadequacy of the present banking law when confronted with a condition of this kind. The National Bank Act provides a time limit between filing of Articles of Incorporation and completion of organization, and also gives the Comptroller of the Currency discretionary power in granting a charter to a national bank, and a perusal of his report for 1910 will show quite a number of refusals in this regard. The Michigan law contains no such provision, nor does it give the Commissioner of Banking any discretion; any five or more persons can execute articles of incorporation for a state bank, and file the same, pay the franchise fee and become a corporation, any state department to the contrary notwithstanding. In one or two states boards or commissions have been established, with power to act. Other states give discretionary power to other state officials. I am apprehensive that this condition will have to be met in the near future in Michigan.
The law should be amended so that a bank of low capitalization, when the village in which it may be authorized to do business becomes a part of another municipality in which a greater capital for banks is necessary, may be required to increase its capital to the amount provided by law for the city of which the village may become a part. Surely, banks brought into a larger municipality by the annexation of territory, should not be allowed to establish branch agencies in the same manner as banks having the required amount of capital for the larger municipality. Otherwise the provisions of Section One of the banking law are defeated, and banks of the minimum capital of $20,000 may be permitted to do business where a capital of $250,000 is intended to be required.
NO OTHER AMENDMENTS.
I would earnestly recommend that the banking laws of the state, excepting as noted, be not materially amended. So many important changes were made at the last session of the legislature and the banks have so recently brought their business in compliance with the law, it would seem for that reason alone it should not be changed in any important particular. The banking law, as it now stands, is very satisfactory and
Upon assuming the duties of this office I became immediately impressed with the importance of the work performed by the employes of the Department. I recognized that it required men of experience and special training and that their value to the Department increased with each year of service.
The Department during my incumbency has lost five examiners whose services to the state had been invaluable. With one exception these men accepted positions at salaries much in advance of that paid by the state. It is to be hoped that the increase in examiners' salaries will result in the retention of experienced men in the future.
Though contrary to the evident general impression it may truthfully be said that political considerations have in no case been entertained in the selection of examiners. They were in every case selected because of their ability and particular fitness for the performance of the duties that have been assigned them, and none have been permitted to spend their time in the interest of the political success of any candidate for office.
If state bank supervision in Michigan is to be further developed and improved the banking department must not be subjected to the political expediency of any one, but on the contrary its efficiency and stability should be encouraged wherever possible.
It is with much pleasure and gratification that I call attention to the hearty co-operation afforded me by the bankers of the state in all that pertained to the better safeguarding of deposits and a more effective supervision.
In conclusion I wish to express my sincere appreciation of the faithful and efficient service of the Deputy Commissioner, examiners, chief clerk and others in the service of the Department; for their fidelity to the public service they must be commended and should be continued in the important work they have in hand.
The foregoing is respectfully submitted,
Commissioner of the Banking Department.