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Lansing, December 31, 1891.

Hon. Edwin B. Winans, Governor of Michigan:

I have the honor to present you herewith my third annual report of the State banking department.

January 7, 1889, when the present State banking law went into effect, there were eighty State banks and one trust company incorporated under State law, whose total assets were $38,963,417.19. At this date (December 31, 1891) there are one hundred and twenty-four incorporated State banks and three trust companies, whose total assets amount to $65,191,972.53, an increase of forty-four banks and two trust companies and an increase of $26,228,555.34 in assets.


During the year I have authorized the incorporation of twenty new banks and one trust company with a total capital of $1,285.500. The location, date of authorization and capital of each, is as follows:

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Of these eleven are new organizations, seven were formerly private banks, and two were national banks, viz.: Second National Bank of Owosso, now the Owosso Savings Bank; and First National Bank of Flushing, now the First State and Savings Bank of Flushing.


Two banks have gone into voluntary liquidation during the year, viz.: Citizens' State Bank of Au Sable and Oscoda, and the Gratiot County Savings Bank of Alma.

These banks have paid their depositors in full, and while the Gratiot County Savings Bank has closed out its business entirely, the Citizens State Bank of Au Sable and Oscoda has gone into private banking under the name of Citizens' Exchange Bank of Au Sable and Oscoda.

The continued use of the greater part of the name used when an incorporation may lead to complications, and I would suggest that the law be amended to prevent its being done.


Three private, and two incorporated banks in the State have failed during the year, viz.: City Bank of Marlette, March 31; Harbor Springs Bank of Harbor Springs, April 20; Farmers and Mechanics' Bank of Imlay City, August 3; National City Bank of Marshall, June 2; and the Milford State Bank of Milford, September 9, making eight private bank failures in Michigan in three years, and three incorporated bank failures in eight years, or since the failure of the Adrian Savings Bank in 1884.

Of the incorporated banks two were national banks, viz.: Lowell National Bank of Lowell, 1888; and the National City Bank of Marshall, 1891, and one State bank, viz.: Milford State Bank of Milford, 1891, which is certainly a good record for incorporated banks in Michigan.

As required by section 43 of the banking law I would report that the Milford State Bank was closed September 9, 1891, after repeated requests that the bank collect in a portion of each large loan made to officers and directors and change its investments to comply with the requirements of the law.

From the report of the examiner, April 17, I was convinced that the capital of the bank was impaired, and ordered that an assessment of fifty per cent be made on the stockholders to make good the deficiency.

The assessment not being collected I, with the concurrence of the Attorney General, applied to the Hon. J. B. Moore, judge of the circuit court for the county of Oakland, for the appointment of a receiver to wind up the business of the bank.

Mr. E. J. Bissell of Milford was appointed such receiver and entered upon his duties September 15, 1891.

The day the bank closed the assets and liabilities, as shown by the books of the bank, were $191,216.81.

Much delay and annoyance in the settlement of the affairs of the bank has been experienced, by the failure of the creditors, to promptly file their proof of claims, and the injudicious interference of a few depositors with the plans of the receiver, which will without doubt, result in loss to the creditors of several thousand dollars.

The Milford State Bank being a commercial bank, held no mortgage securities, the loans being made on domestic and foreign paper, and

acceptances of a party in Kansas who had loaned on, and invested in Kansas property, with money obtained from the bank.

These acceptances and investments amounting to over $31,000 will in all probability prove of little or no value.

Of the domestic and commercial paper, a large proportion was loaned to five or six individuals and firms, a majority of the members of which were officers and directors of the bank, without security, save the indorsement of each for the other.

These notes have proved to be nearly worthless, as the makers, by speculation and poor investments have become bankrupt.

The failure of the bank can be attributed to speculation, injudicious loans, and gross negligence on the part of the board of directors; the president, and two other prominent directors, not knowing that the bank had money loaned in Kansas, although the investment had been made in 1887, two years before the present banking law went into effect, and the acceptances renewed from time to time as they became due. It seems to me the law should inflict some penalty upon directors who disregard or willfully neglect the duties they are expected to perform.


In this connection I desire to call your attention to the weakness of the banking law in regard to the closing of delinquent banks.

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 deficiency 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 happens-the 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. That the Commissioner has this power, is no proof that he will use it arbitrarily, or to the

damage of an association which is honestly entitled to assistance rather than annihilation.

A statute which requires an officer to perform certain duties, and then makes it impossible for him to execute the same, is a travesty on law.


I would also ask that the tax law be amended so that a portion of the surplus of a bank be exempt from taxation.

There is no denying the fact that corporate banks, and bank stock is taxed higher than any other property in the State.

I do not believe this is done because of opposition, or for the purpose of taxing them out of existence, for next to a church and school-house a bank is considered the most necessary public institution in a city or village.

I think the true reason for the unjust taxation of bank stock, is on account of the superficial knowledge the general public have of the banking business.

The law compels incorporated banks to report their condition whenever called upon by the Commissioner or Comptroller, and publish the same in a newspaper; consequently every individual knows their standing, and on the erroneous supposition that every dollar of assets held by the bank is good, demand that it be taxed at its face value.

If every private banker, company, firm, or individual in the State were compelled to make a similar statement as publicly as do banking corporations, there would be no injustice in the demand; but they are not.

The assets of the private banker, the goods of the merchant and manufacturer, and even the property of the farmer, not being so easily found as bank stock, escape taxation; or if found, are not assessed at what they would sell for in open market.

The banking law now requires that each bank before it declares a dividend, shall carry ten per cent of its net earnings to a surplus fund, until such surplus amounts to twenty per cent of its capital stock.

This is a just and reasonable requirement, as it strengthens the bank, affords greater security to the depositors, and should be encouraged rather than discouraged by taxation.

Banks sustain losses the same as other business enterprises, and where there is not sufficient surplus to cover the loss, the capital becomes impaired and the creditor's security jeopardized.

From the fact that, during the past three years I have ordered five different banks to make good their capital stock, impaired by losses sustained, I am forcibly impressed with the necessity of a large surplus, and its value as an insurance against losses and bad debts.

I therefore earnestly recommend that banks be required to annually carry ten per cent of their net earnings to a surplus fund, until the same shall amount to fifty per cent of its capital, and that all surplus up to and including that amount be exempt from taxation.


Neither in my report of 1889 or 1890 was I able to say that all the banks under State supervision were in a satisfactory condition, neither can I at

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