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Montfort Bank, Montfort, sold to Montford State Bank. Exchange Office of L. W. Heindel & Son, South Wayne, liquidated.

The Cuba City Bank, of Cuba City, reported to this office as having commenced business after April 2nd last, discontinued business before this report was called for.

STATE BANKS CLOSED.

Bank of Antigo

Bank of Lodi

Bank of Edgerton

Antigo.
Lodi.
Edgerton.

An examination of the Bank of Antigo on November 12th disclosed the fact that false entries had been made upon the books of the bank, and upon being pressed for explanation the cashier confessed to having abstracted and converted to his own use, several thousands of dollars of the bank's funds. The directors being called together, and

following day. It has not yet re-opened, but this office is in receipt of information to the effect that provision has been made to pay depositors in full, restore the capital, and shortly resume business.

The closing of the Bank of Lodi on October 20th resulted from the failure of the Bank of Edgerton on the day previous. The stockholders and officers have made arrangements with the depositors whereby the latter will be paid in full, the payments being made in periodical installments, and the bank has been reorganized and resumed business. The closing of the Bank of Edgerton on October 19th resulted from the discovery of large losses inflicted upon the bank through criminal frauds perpetrated by its cashier. The failure of this bank is the most serious suffered in this state since the organization of this department. The causes which led to the ruin of this institution have already been specially and at length reported by me. From such report, and for the purpose of again pointing out the dangers to a bank, made possible by long continued manipulations of a cashier possessing the implicit confidence of the community and those interested in the bank, I repeat here the following extract from such special report:

"About a dozen years ago it seems that a systematic course of embezzling money from the bank and swindling depositors, and outsiders as well, in several most ingenious ways, was entered upon. One of these was by the over-issue of certificates of stock of the bank, which certificates were employed as the wherewithal to raise money by putting them up as collateral security, either with individuals or banks.

Upon the face of the reports and in the stockholders' meetings no trace of this fraudulent procedure was discoverable. The excess of the certificates, which amounted to many thousands of dollars, was in the form of a duplication of the stock, issued either to the cashier or to members of the family of the former president of the bank. One bank alone recently was found by me to have $12,000 of these certificates, and suspicion could not even attach to this fraud so long as care was exercised by its perpetrators in their operations.

Another means of obtaining money commonly employed was to receive call deposits which were at once misappropriated and never placed in the bank of these entries were sometimes made upon pass-books of depositors; with some, not even this was done, and no entry of any kind was

permitted to appear on the books. In this way many thousands of dollars of the money of the patrons of the bank was stolen without leaving on the books any evidence of the embezzlement, and no examination of the bank, whether by the examiner or the directors, could reveal the commission of these acts. The offender was secure so long as he retained in the bank sufficient money to meet checks of depositors when presented.

A third custom was to receive money in exchange for certificates of deposit, appropriate the money and make no entry in the books of the bank of the issue of the certificate, or, if any entry was made, to make it for an amount much smaller than the sum named in the certificate, or when issue was made of a certificate to a depositor to issue another of like number and enter but one of the certificates upon the bank books. By the issue of these unentered or falsely entered certificates of deposit the bulk of the misappropriation of moneys was accomplished."

Respecting the frauds perpetrated by the over-issue of certificates of the bank stock, I am led to quote the following editorial comment of the American Banker" of New York, where, in reference to this particular transaction, as above described, the editor urges, a more business-like understanding between banks bearing relations of borrower and lender towards the public. The bank in question was able to dispose of over-issues of certificates of its stock to other institutions as a basis for accommodation. How could such transactions have taken place if inquiries, perfectly proper, had been made before the negotiations were completed?"

Speaking of the conversion by the cashier of the bank's deposits, the editor continues: "It is a lesson to all boards that it may be possible to nip in the bud a criminally disposed official, if the bank's business is occasionally sub. jected to a thorough examination - for example, as would have proved effective in this case the calling in of all pass books and certificates at one time for the purpose of comparing them with the record."

This department has constantly endeavored since its creation to enforce upon the directors of banks a sense of their duty to the institutions under their charge. Where mismanagement occurs it too frequently is found that the

fidence in, and exercised too little supervision of the bank's active officials.

National Comptroller Eckels says in one of his recent reports: "Bank directors should know whether precautionary measures in the verifying of entries upon ledgers or passbooks are taken, and whether employes from president to bookkeeper are engaged in speculative enterprises employing the bank's funds, thus endangering the safety of those trusting the bank."

This view of the National Comptroller is in line with that expressed by me in a circular letter forwarded from this office one year ago to the address of every bank director of a state bank in Wisconsin. Believing the subject of sufficient importance, I take the liberty of incorporating such letter in this report, as follows:

BANK EXAMINER'S OFFICE,

MADISON, WIS., Nov. 25th, 1896.

To the Board of Directors of Wisconsin State Banks:

GENTLEMEN:- As the time for the usual annual or semi-annual meetings of the Boards of Directors of State Banks is approaching, I desire to call attention to the matters following, and request that they receive the consideration their importance demands.

In the examination of banks thus far it is found that in some instances directors of banks fail to hold any meetings, leaving the affairs of the bank entirely in the hands of its President or Cashier; that in other instancəs meetings are held very irregularly; and that often when meetings are held the work is done in a perfunctory manner, the directors in these cases practically failing to perform the duties which the law clearly intends they shall perform.

I am satisfied it is the plain intent of our state laws that the board of directors of a bank should manage its affairs. Regular meetings should be held at least twice in each year, and at such meetings a thorough examination of the affairs of the bank be made, including an inquiry into the value of all notes, securities, and other property carried as assets, carefully noting the nature and amount of overdrafts; and when securities have become outlawed or worthless, or depreciated in value from any cause, the cashier should be directed to charge off such loss or depreciation.

No dividend can lawfully be declared unless the earnings of the bank will warrant the same after deducting all losses. The present worth of all paper and other assets should be taken as a basis in determining whether

It is the duty of bank directors to faithfully and honestly administer the affairs of the institution of which they are in charge. It is their business to know that the transactions of the bank with which they are connected are properly recorded, and to adopt such methods as will effectually prevent dishonesty and loose business practices. Your attention therefore is respectfully called to the fact that our courts are generally holding directors personally responsible for the proper management of their respective banks, and liable for any losses resulting, where it can be shown that they have neglected their duty.

Hoping that

I beg leave to assure you that my only purpose in making these suggestions is to secure a more efficient management of our banks, thereby protecting the interests of both depositors and stockholders. you will cheerfully shape your action accordingly, I am, Very truly yours,

EDWARD I. Kidd,

Bank Examiner.

It is of the utmost importance that bank directors and persons owning private banks make themselves conversant with the methods and personal tendencies of those who have charge of the bank's funds; make careful inspection of the loans and securities, the amount and character of overdrafts; the best method of providing for the safe issue of certificates of deposit, and ascertaining the amount and number of those outstanding; and provide for the proper bonding of bank officials. In this particular I desire to call the attention of banks and bankers to the very excellent surety and guaranty companies, which, for a reasonable premium, give bonds for the fidelity of employes.

The above suggestions are in no way intended to shift the responsibility which attaches to the supervision of banks by this office, but rather to emphasize the necessity for the adoption of all practical safeguards for the protection of the patrons of the banking institutions of the state.

Notwithstanding these suggestions are deemed by me to call for the most serious consideration, I feel warranted in congratulating the state upon the strong condition of its banks as a whole. It is a fact that losses, through mismanagement of banks, in Wisconsin have been very small when compared with those resulting from failures of

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