I would call your attention to that part of section 27 of the General Banking Law, that deals with the reserve of savings banks. The first part of section 27 provides that savings banks "shall keep on hand at least fifteen (15) per cent of its total deposits in money in its own vaults, or on deposit, payable on demand, with banks, national or State, in cities approved by the Commissioner as reserve cities, or invested in United States bonds." You will see by this that savings banks are not required to keep any portion of their reserve in their own vaults, but can deposit it in other banks, payable on demand. Nearly all the savings banks in the State keep as much of their fifteen per cent reserve fund as they can spare with other banks and receive interest thereon. This interest account is a matter of great importance to the savings banks, and if deprived of it they could not pay as high a rate of interest to the depositor as they are now paying. But is the law, permitting the depositing the entire reserve of savings banks with other banks in reserve cities, consistent with sound conservative banking? Some think it is, claiming that if banks were compelled to lock up two million dollars of their reserve in their own vaults, it would very seriously affect the business interests of the State. December 11, the fourteen savings banks in the city of Detroit, although they had a large portion of their reserve in cash in their own vaults, yet had on deposit in the national banks of the city $2,139,990.94. Now, the question is, should the officers of savings banks decide for themselves as to the amount of reserve they should keep on hand; or should they be required by law to keep a certain per cent of said reserve in cash in their own vaults, as commercial banks are required to do in section 24 of the General Banking Law? There are strong arguments for and against this proposition, and having called your attention to the matter, I leave the question for others to decide. PRIVATE BANKS. Notwithstanding this has been a reasonably prosperous year for banking institutions, three private banks have failed during the year, viz.: "The Bank of Evart," Allen Campbell cashier and proprietor, located at Evart, Michigan; H. G. Packard & Co., bankers, Reed City, Michigan; Weimeister & Co., bankers, Howell, Michigan. The Bank of Evart closed its doors, and Mr. Campbell left Evart January 9, 1889. Liabilities, as far as can be ascertained, about $12,000; assets, nothing. No settlement has been effected, and it is not probable that creditors will receive anything. H. G. Packard & Co., bankers, made an assignment September 27, 1889. Liabilities, $42,313.22,-all due depositors; assets, $57,290.65. A large portion of this is poor paper, and we are informed that creditors will not receive more than thirty cents on the dollar. Weimeister & Co. failed September 25, 1889. Liabilities about $125,000, of which $100,000 or more is due depositors. Assets about $105,000. On account of litigation and poor paper, it now looks as though creditors would receive a very small percentage of liabilities. Neither Mr. Campbell or Weimeister & Co. ever filed the necessary papers with the county clerk, as the law directs. In view of these facts, the question arises, should not the private banks and bankers be subject to the same laws that control and govern the regularly incorporated banks of the State? Why should one class of banks be under restrictions for the protection of the depositor, and another class be allowed to receive deposits, sell exchange, in fact do a regular banking business, without any restrictions whatever, not even making public the amount of capital invested in the business? The amount of capital should at least be made public, as a wealthy private banker, if he felt disposed, could easily avoid paying his proportion of taxes, by returning for taxation a small amount of the capital invested in his business, while a banker with small capital could return a large amount, and by so doing, induce the public to deposit with him, under the impression that he was abundantly able to meet all demands, when in fact he was entitled to little or no credit. There are now over two hundred private banks doing business in this State, many of which are managed by careful, conservative business men, and are entitled to the confidence of the public, but there is no doubt that a large number have not complied with section 3128 of chapter 85 of Howell's Annotated Statutes of Michigan, which provides "That no person or persons shall be engaged in the business of a broker, or of buying or selling current or uncurrent money, or bank notes, or in the exchange thereof, or in the buying or selling exchange, or in the exchange of coins, or in the receiving of deposits of money or bank notes, as such broker or exchange dealer, unless such person or persons shall first make and file with the county clerk of the county in which such broker's office is or shall be located, a certificate, etc." Again, many of these banks by their books, checks, letter heads, and also by the sign in their windows, or at the front of their office, convey to the public the idea that they are incorporated banks, which is plainly in violation of section 3133, to which your attention is called. It is evident to me that a law should be enacted forbidding any person or persons using the name "bank" or "bankers" for business purposes of a financial nature, unless they are incorporated under the General Banking Law of the State, or of the United States. I know it is urged by some that a person has a right to carry on his private business in any way he may desire, without dictation or supervision, but they should remember that when a banker invites deposits from the public, it ceases to be a private business and becomes a public matter, and if public, then the people should know the amount of capital in the business, and the disposition of the deposits made by the depositor. The sound, conservative banks do not fear to make an exhibit of their liabilities and assets, and all others have no right to the name "bank" which today carries with it the idea of safety and honesty of purpose. Again, when a private bank is owned by an individual or by two or more partners, if the proprietor or one of the partners should die, in most cases it would become necessary to close up the business, and that through the tedious process of the probate court. This would not only cause great annoyance and inconvenience to the business community, but the estate of the banker would suffer loss, as no banking business could be summarily closed without damage to the estate, and in some cases the shrinkage would be so great as to cause loss to the depositor. For this and other reasons many private bankers in the State have already incorporated under the General Banking Law, and several others have intimated their intention of doing so in the near future. BUILDING AND LOAN ASSOCIATIONS. There is another class of business of a financial nature to which I would call your attention, and that is the Building and Loan Associations. Any business that fosters and cares for the savings of the laboring man, or makes it possible for him to secure a home for his family, should receive the sanction and support of every individual. On the other hand, every corporation or association that, by the promise of large gains, induce the laboring man to invest his earnings with them, and then by fraud and dishonesty deprive him of his savings, should receive the condemnation of all honest men. Local building and loan associations have prospered and done much good in many eastern cities, and where they were honestly and economically conducted, have assisted many families in securing homes, without which assistance, they never could have succeeded. I am satisfied, however, that the member of the association is principally benefited on account of the accumulation of his savings rather than by the benefit derived from the loan he makes from the association. I know he can borrow a larger amount on the property he desires to mortgage than he could obtain from a savings bank. I also know he pays a larger interest. But where every member is a borrower, as well as a depositor, it matters but little whether he pays six per cent or twelve per cent, as he shares in the profits. But where one-half of the membership are borrowers and the other half deposit solely as an investment, it is clear to me that, if large profits are realized, the depositor is benefited at the expense of the bor rower. There are now fifty-nine building and loan associations, several investment and security companies, national building associations, and others of a like nature in this State, all seeking business, and all depending upon the public for support. With money as plentiful as it now is, it is safe to look with suspicion upon any enterprise whose promoters claim a return of twenty-five or thirty per cent on the investment. If it was necessary a few years ago to enact a law forbidding foreign insurance companies doing business in this State unless they complied with certain requirements, it is of much more importance that some restrictions be placed upon those building associations organized in other States, and doing business in this, not subject to our laws, and of whose responsibility we know little or nothing. All building and loan associations, in fact every association of a financial nature that invites deposits, should be under some State supervision for the protection of the public. Those associations that are honestly and economically conducted do not fear an examination, and all others have no right to exist. BANKING DEPARTMENT. Although this department has been ready to meet every demand made upon it, so far as blanks for the different reports and for the incorporation of banks are concerned, yet it can hardly be said that the State Banking Department is thoroughly or satisfactorily organized at the present time. As there was no precedent to follow, we had to commence at the beginning, and as in other departments of State, time and experience only will determine the best measures to adopt in making successful the great banking interests of our State, over which this department is placed. The degree of success the department has already achieved is in a great measure due to the hearty co-operation of the several banks, whose cheerful compliance with the requirements of the new banking law have rendered easy the duties of this department which otherwise would have been burden some. In this connection, allow me to call your attention to the honesty and integrity of the officers and clerks in our State banks during the past year. Numbering nearly 500, and handling as they do over one hundred millions of dollars in cash and its representative, without proving unfaithful to the trust imposed in them, is a matter worthy of favorable mention, in these times of political and official dishonesty. I might further state, that so far as I have been able to ascertain, the same will apply to officers and clerks in the national banks of the State. In concluding this report, I would suggest that the legislature, realizing the magnitude of the banking business of the State, and the varied interests that are dependent upon its success, will examine closely every amendment to the General Banking Law that is offered, and adopt those amendments only which will be of obvious benefit to the State at large, and not for a particular locality. The succeeding pages contain a detailed financial report of each institution required to make a report to this department, together with the names of officers and directors; also, a copy of the General Banking Law of the State. |