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2. The law (Section 27, Chapter 2) limits the size of loans to any person, co-partnership or corporation, etc., to thirty per cent. of the amount of capital and surplus of such bank. This is not only a sound provision, but a liberal one as well. However, a loophole was opened in this section of the law by a further provision "that by a two-thirds vote of the directors, the liabilities of any person, co-partnership or corporation may be increased to a total sum not exceeding the amount of the capital. and surplus of such bank, upon approved security."

A bank, then, may loan money in amounts each equal to its combined capital and surplus, to several customers simultaneously and place its entire capital and surplus in jeopardy more than once at any period. Thus the danger line is reached. For, no argument is needed to show that, the ever possible failure of any party thus favored by an excessive loan will embarrass the bank to a greater or less extent, depending upon the character and availability of the security.

The banking act of 1852 was silent on this subject. In the absence of all restrictions, some bankers made it a practice to make loans without limit; at times, indeed, permitting the loan to one party to exceed the total amount of the capital and surplus of the bank. It would without doubt disturb business considerably to enact and enforce a law which would suddenly place radical restrictions in this respect upon banks. Due regard for existing conditions dictated caution. The provision of the National Banking Act which limits the loans to any party to ten per cent. of the capital of the bank, could not well serve as a criterion. This provision undoubtedly holds good in the case of city banks. In a measure it compels them to increase their capital. But it was not deemed just nor necessary to apply a similar rigid rule to state banks, a majority whereof are located in rural communities which are more conservative and far less prone to panics. Therefore a vastly more liberal yet reasonable limitation was embodied in the original draft of the banking bill. That this limitation was eventually extended to its present proportions is a Source of grave apprehension to this


department. Fortunately, by far the largest number of banks do business without ever approaching the limit, and only a small number of them, by reason of exceptional local conditions, avail themselves continually or periodically of the full scope of the freedom thus granted by law. It is believed that, beyond impelling the few banks referred to to increase their capital, no hardship would result from still further confining the size of such loans.

While on the subject of legislation, I cannot refrain from mentioning that, since the State makes it its business to supervise banks and building and loan associations, it would be not more than right to extend such supervision to other institutions which make it their business to receive deposits and to handle other people's money. I refer particularly to trust companies, so-called, which are not given "the right to buy or sell bank exchange or do a banking business," (Section 1791g, Wisconsin Statutes 1898) but which, nevertheless, encroach upon the business of banking to the extent of receiving savings and time deposits. It would be but consistent to place them under like supervision and examination.

Very respectfully,

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At the close of business on the 17th day of November, 1903, as made to the Commissioner of Banking.

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Thomas Gravenor, Albany.
G. W. Roberts, Albany.
J. B. Gravenor, Albany.
W. D. Roberts, Albany.

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