city, with liabilities amounting to nearly one million dollars, and with two banks closed on account thereof, it was a condition to appall the strongest heart.

In the face of all this, the officers and directors of the three remaining banks came to the rescue, and in a battle for existence unknown in the history of finance, achieved a triumphant victory.

To the local press and business men of the city, all honor is due for their loyalty to home industry, and for their material assistance, which made possible the reopening of one of the closed banks.

Bank officers and directors in other cities and villages are, and should be commended for the honorable part they took in maintaining the credit in the interest of depositors.

Although the discipline in the school of experience is severe, there is no doubt but that the knowledge obtained during the panic will be of great benefit to many bankers in Michigan, who required something more than the advice of this department to convince them that conservatism is one element in banking that must not be lost sight of if a successful business is expected..

A careful survey of the situation has convinced me that if the several boards of directors throughout the State had given their respective banks the same attention two years ago that they have the past six months, there would not be a "disabled" bank in the State today.

BANKING LAW.

At the commencement of the panic, many persons were uncertain as to the ability of the State banks to withstand the financial excitement, as the law, so recently adopted, under which they were incorporated, being a dual law, provided for the transaction of both a commercial and savings business. The officers of the banking departments of California, Minnesota and Massachusetts evidently had their doubts as to the advisability of uniting the two, for they recommended in their annual reports that savings banks should not be permitted to transact a commercial business, for the reason that the savings bank is likely to be injured by any misfortune which may overtake the commercial bank.

At the time the banking law became operative, I doubted the propriety of allowing banks to incorporate with savings and commercial departments, especially in our large cities, and all through the panic I closely watched the effect that the unprecedented financial stringency would have upon these banks. I am now satisfied that if properly managed, and under careful, judicious supervision, they can be as successfully conducted as though they were separate institutions. In fact in many instances they were stronger because of the union.

If there was any exhibition of weakness, it was from other causes, rather than the effect of the dual law.

The reports of the banking commissioners of the states above mentioned, were made before the panic, and I am inclined to believe that the real reason that the two classes of business did not operate successfully together in these states, was because of the insufficiency of their banking laws, rather than the reason given.

Michigan's banking law has all the good features of the national bank act, with several valuable amendments adapted to the varied business interests of the State, and our citizens can congratulate themselves that it

had been in operation long enough to command the respect of the public, before we were compelled to contend with the unprecedented monetary stringency of 1893.

EFFECT OF THE PANIC.

That the State banks suffered severely from the effects of the panic, is shown from the table on page 13.

From this table it will be seen that the decrease in deposits in the State banks between May 4 and July 12 was $5,342,712.77.

Between July 12 and October 3, $5,434,457.57, while between October 3 and December 19, it was only $1,238,304.13.

The total shrinkage in deposits in State banks between May 4 and December 19, including amount due to banks and bankers, was $12,471,796.27, or 18.34 per cent.

With national banks the per cent of decrease in deposits is slightly in excess of that of the State banks, as will be seen by consulting the table on page 14.

The shrinkage in deposits in national banks as shown by this table, between May 4 and July 12 was $5,115,838.45. Between July 12 and October 3, $4,053,775.27, while between October 3 and December 19, there was an increase in deposits of $278,400.97.

The total decrease in deposits in National banks between May 4 and December 19, including United States deposits and amount due to banks and bankers, was $9,990,144.87, or 20.68 per cent.

During the panic many individuals unjustly criticised the banks, claiming that the demands upon them were not as great as represented, and that the officers were selfishly hoarding money, that they might obtain a higher rate of interest.

That such was not the case is clearly shown by the decrease in deposits between December 9, 1892, and December 19, 1893, as will be seen by reference to the table on page 16.

With State banks the decrease, including amount due to banks and bankers, was $11,511,006.93, or 17.31 per cent.

With national banks the decrease, including United States deposits and amount due to banks and bankers, was $14,396,386.29, or 27.31 per cent. That the State and National banks of Michigan could successfully withstand the withdrawal of over twenty-five millions of dollars, nearly all of which was withdrawn the last eight months of the year, merits commendation rather than unjust criticism.

NINETY DAY RULE.

When the financial excitement was most intense in Detroit, at a meeting at which each bank in the city was represented, I strongly urged that savings banks avail themselves of the ninety day rule, believing that its enforcement would allay the excitement and allow the better judgment of the depositor to assert itself.

The result proved the wisdom of the advice, for, when it was known that the banks were united in the enforcement of the rule, the excitement immediately subsided.

Very few depositors gave the required notice, and but a very small por

After the first few days the rule was not rigidly enforced, depositors receiving partial payments of their deposits as their necessities required, and was wholly ignored by a majority of the banks before the ninety days expired.

I cannot too highly commend the ninety day requirement as embodied in the rules and regulations of savings banks. It not only benefits the bank, but is of much greater benefit to the depositor.

The majority of the depositors in our savings banks are laborers, who have not the time or opportunity to make profitable investments. These deposit their money for the interest paid them by the various banks.

In times of financial excitement the intelligent depositor, who knows that the bank could not pay him interest on his deposit, unless it invested the same, is at the mercy of the ignorant depositor who never gives the subject a thought.

By the enforcement of the ninety day rule the intelligent depositor, and those absent from home, are on an equal footing with those living within a few minutes walk of the bank, and especially those whose only thought is to secure possession of their money, no matter who suffers by the withdrawal.

There were a few individuals who were inconvenienced by the enforcement of the ninety day rule, and they were the speculators who thrive best on the misfortunes of others. This class had deposited their surplus money in the savings department because they received a higher rate of interest than they would in the commercial department, where the deposit properly belonged.

When, on account of the close money market, these individuals could make good investments, with interest at fifteen or twenty per cent, they naturally denounced the ninety day rule, which prevented their drawing the money until the expiration of the required time.

The reason a bank can pay three or four per cent interest to savings depositors is largely because of the permanency of the deposit.

That thousands of persons were benefited by the enforcement of the ninety day rule, I have no doubt, and I am equally positive that but few persons in Michigan, whose deposits were legitimate savings deposits, suffered any inconvenience from its enforcement.

CLEARING HOUSE LOAN CERTIFICATES.

In several of the larger cities of the State are established Clearing House Associations, the primary object of which is for the purpose of effecting at one place the daily exchanges between the several associated banks.

The responsibility of the association is limited to the faithful distribution by the manager, among the creditor members, the sums actually received by him.

May 27, 1893, the Detroit Clearing House Association adopted the plan which succeeded so admirably in New York in 1890 and 1891, and by an amendment to their constitution provided for a "loan committee" authorized to receive from banks, members of the association, bills receivable and other securities to be approved by the committee, and issuing therefor "loan certificates" not in excess of 75 per cent of the securities or bills receivable so deposited; said certificates to draw interest at the rate

of 7 per cent per annum, and to be received and paid only in settlement of balances at the clearing house.

Upon delivery of such certificates a proper obligation was taken from the depositing member, made by the member or other persons, corporations or firms, satisfactory to the "loan committee," together with the securities pledged therefor, for the benefit of the holders of the certificate issued to the depositing member.

In case of loss resulting from default in payment by a member or a maker of the obligation, and failure to realize a sufficient amount from these securities held as collatteral to the obligation, such loss to be borne by all the members of the association.

"The loan certificates" issued by the Detroit Clearing House Association, were for $5,000 each. The first one was issued June 17, 1893, and was in the following form:

Loan Committee of the Detroit Clearing House Association. No......

Detroit, Mich.,-

$5,000.

This certifies that has deposited with this committee, securities in accordance with the proceedings of a meeting of the association held May 27, 1893, upon which this certificate is issued.

This certificate will be received in payment of balances at the Clearing House Association.

On surrender of this certificate by the depositing bank above named, the committee will endorse the amount as a payment on the obligation of said bank held by them, and surrender a proportionate part of the collatteral securities held therefor.

Committee.

The total amount of certificates issued was $500,000. The largest amount outstanding at any one time was $360,000, on September 11, 1893, and the last certificate was surrendered and canceled November 10, 1893.

I have called your attention more particularly to this matter as the issuing of "Loan Certificates" was a new departure for Michigan, and was criticised by some persons as a revival of "Wild Cat" money and in violation of section 32 of the State banking laws.

This is not true. The law was not violated, for these certificates were not designed for, neither did they circulate as money. They were but promises to pay, and their only function that of discharging the obligation at the clearing house.

The first banks to feel the effect of a general monetary stringency, were those located in the large reserve cities. In times of financial prosperity the surplus funds of interior banks naturally find their way to these cities, for the reason that the banking law provides that a portion of the money reserve may be kept with banks in such cities. The payment of interest on daily balances by the bank receiving such deposit, is another strong inducement for country banks to accumulate a surplus in money centers. During the months of June, July, August and September last, several millions of dollars were withdrawn from Detroit by interior banks, who to protect themselves against unusual demands by local depositors were compelled to call in all their available surplus funds.

In such an emergency as this, I urged the issuance of clearing house

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certificates, and by their use in settling balances at the clearing house, a large amount of coin and currency was released for the current, legitimate demands of business.

There is no doubt that the timely issuance of these certificates had much to do in restoring public confidence, as depositors were apprised of the fact, that, by the united action of the Clearing House Association, the support of all the banks in the Association was pledged for the protection of each.

That you may have an idea of the amount of business transacted through the Detroit Clearing House Association, and the effect the panic had on such business, I present herewith a comparative monthly state ment for the years 1892 and 1893:

BUILDING AND LOAN ASSOCIATIONS, BOND AND INVESTMENT COMPANIES, ETC.

I have several times called the attention of the Governor and members of the legislature to the necessity of state supervision for building and loan associations, guarantee and investment companies, and other like associations.

At the last session of the legislature, officers and members of building and loan associations united with me in asking that the law be so amended as to provide for State supervision. On account of the difference of opinion as expressed by officers of local and national associations the amendment failed to become a law.

With local building and loan associations the necessity for supervision is not so important as it is with national associations and investment companies.

The business of local building associations is confined to cities and villages where located. The members are each acquainted with the other, and are conversant with the character of the business transacted and the investments made.

With national associations and investment companies it is different. They seek to do business in every city and village in the United States,