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 savings 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. RESIDENT DIRECTORS. 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. TRUST COMPANIES. 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 The present law authorizing and regulating the business of trust companies should be entirely repealed and another law passed, more specifically prescribing their rights, powers and limitations.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 grant ing 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. BRANCH AGENCIES. 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 IN GENERAL. 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. |