RECEIVER'S REPORT OF THE CONDITION OF THE FARMERS' AND

MERCHANTS BANK AT BANGOR AT THE CLOSE OF BUSINESS

ON THE 21ST DAY OF NOVEMBER, 1903.

3. Kenosha State Bank, a banking corporation organized August 19th, 1902, with a capital of $25,000. The organizer and principal stockholder was one Frank S. Komp of Chicago, who held $11,300 of stock in his own name and $12,000 as trustee. The bank commenced business September 1st, 1902. The first examination by this department was made eight months later, when it was found that practically no capital had been paid in and none was forthcoming. I therefore closed the bank on April 4th, 1903, and a receiver was appointed by the court; but Mr. Komp giving an indemnity bond satisfactory to the court, the receiver was discharged. The bank had deposits amounting to $17,970.42 and the depositors were paid in full a few months after the closing of the bank.

The above case amply illustrates the wisdom of the provision of the new banking law which requires the commissioner of banking to make an examination of every new bank before granting to it authority to commence business.

Two other state banks were closed by this department in addition to the above, during the year 1903, but, I am gratified to say, both succeeded in paying off the losses sustained, and were permitted to resume business. They were the Princeton State

At the time of the

places from which they derive their names. examination of the Princeton State Bank on October 7th, 1903, suspicion of the examiner was aroused as to the genuineness of certain notes carried among the assets of the bank. The thread was taken up from this office and, after a careful canvass, one forgery was established. Confronted with the evidence, Cashier Joseph E. Leimer confessed to this forgery as well as to a number of others. The spurious paper thus unearthed amounted in the aggregate to $32,000 or $2,000 more than the bank's capital. Other manipulations by Cashier Leimer increased his defalcation to a total of about $40,000, rendering the bank insolvent. J. E. Leimer was also a stockholder, director and vice-president of the Montello State Bank, located in the neighboring city of Montello. His intimate connection with this institution enabled him to fost upon it about $17,200 of spurious notes, which impaired its capital and necessitated the closing of this bank also.

The stockholders in the Montello State Bank made good the shortage and the bank was permitted to reopen on November 5th, 1903.

Princeton State Bank was placed in the hands of a receiver. With the aid of some $17,000 recovered by this bank from J. E. Leimer and by a heavy assessment upon stockholders (the assessment exceeding the legal limit of 100 per cent.) the shortage was made good, and on the petition of a large majority of the creditors and with the consent of this department, the receiver was discharged by the court on December 11th and Princeton State Bank was permitted to resume business on December 12th, 1903. The statement of this bank, which is embodied in this report, is dated as of December 15th, 1903, and shows its condition three days after such resumption. Cashier J. E. Leimer was arrested on the charge of forgery, and it is expected will be brought to trial at the January term of the circuit court.

The tribulation through which these two banks passed vividly illustrates the dangers of a "chain" of banks. Both were at one time links in a chain of about a dozen banks, controlled by

one man, and the directors of both early became accustomed to being directed by the man in control and to being supplied by him with promiscuous, negotiable instruments. The links were severed a few years ago and the Princeton and Montello banks became nominally independent. Leimer, by virtue of his prominent connection with both banks, practically assumed the management of both, and undertook to invest the funds of both, and no questions were asked, all concerned being by this time well used to being ruled by one man. Only under such conditions was it possible to fill the note cases of the two banks with forged paper without detection by directors. The new banking law which distinctly imposes upon the directors the duty of managing the affairs of their bank will, it is hoped, put an effectual end to the one-man-banking plan.

LEGISLATION.

The legislature of 1903 passed a banking law known as Chapter 234, Laws of 1903, and entitled "An Act for the creation of banks and for the regulation and supervision of the banking business." This act was approved May 13th and was published on May 15th, 1903.

Some of its provisions, notably that requiring the capital of each bank to be paid in, in full, will not be in force until February 1st, 1904. Nevertheless, on the strength of the experience afforded since the passage of the law, I feel warranted in saying that, on the whole, the law is very satisfactory. It is sufficiently liberal not to hamper banks unnecessarily in their legitimate sphere of work. It is strict and positive where regard for the interests of depositors requires rigid adherence to estab lished business principles and methods. It is simple enough, and practical. Complaint was made in some quarters, while the bill was pending, that certain of its provisions were drastic. Rocent events prove that none can be too drastic when aimed at dishonest officials. The chapter relating to mutual savings banks

bank the second in the state was organized under its provisions.

It would be preposterous, of course, to claim that the new law is perfect. Like all new statutes, the new banking law is defective in some respects and will have to be put to a more thorough test before all of its imperfections can be revealed. There is, however, one provision in the new law which has been completely carried out and borne fruit. I refer to Section 45 which abolished private banks. There are no private banks in Wisconsin now. No person, co-partnership, or coporation not organized under the banking law and not chartered by this department is permitted to use the name "bank" nor its derivatives, nor any other name indicating that such person, etc., is conducting the business of banking. The result of this prohibition cannot be overestimated. While it was always conceded by this department that many of the private banks of Wisconsin, while they were in existence, were strong and irreproachable institu-* tions, it must be said that they were the exceptions. The inherent evils of private banking, as pointed out in previous reports of this department, were so many and so weighty, that the people of Wisconsin may be justly congratulated on having effectually and, it is hoped, permanently abolished the system.

No stronger evidence of the soundness of this provision could be adduced than the fact, as stated heretofore, that practically all of the private banks in existence on May 15th, the day of the publication of the law, have become converted into state banks within the seventy-five days allowed them by law for such conversion; that this transition took effect quietly, not the least demonstration of excitement or disturbance being perceptible; and that these same banks are now enjoying, if anything, a larger measure of prosperity than before such conversion.

Nor was the measure anything but unpopular. While the bill was pending, there was some spasmodic opposition to it, but no concerted action developed and the bill eventually received the two-thirds majority of votes in each house, taken by ayes and nays, as required by the constitution, notwithstanding the bill was put upon its passage during the last week of the session,

when but 28 out of the 33 senators and but 76 out of the 100 assemblymen were present.

The professional press of the country and the leading newspapers have commented very favorably upon this feature of our banking law. Among others, "The Chicago Banker" in its issue of August 6th, 1903, speaks as follows:

"Wisconsin continues to be foremost in many things relating to banking and financial law. She has taken a step in advance of all of her neighboring states, including Michigan, in matters relating to bank inspection and bank regulation."

"A new law was passed in May of this year, and will go into full effect the first day of September. Sweeping changes have been made in a direct line with those freely recommended for Illinois in the columns of the Chicago Banker. Private banks have been practically legislated out of existence. Under the old law they were subject to inspection by a bank examiner, and compelled to make reports at stated times. After September first the law directs that they shall become incorporated banks or absolutely cease the banking business." *

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"The banking committee of the Wisconsin legislature is being congratulated by bankers all over the state upon the passage of the new law which so soon goes into full effect."

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In pointed contrast to its strong features, the banking law is burdened with at least two provisions, which, even at this early stage, may be unhesitatingly pronounced weak; indeed they were known to be weak while the bill was pending. Reference is had to the section permitting banks in communities of less than 1,500 inhabitants to incorporate with a minimum capital of $5,000.00; and to the section intended to limit the size of loans.

1. The original bill provided for a minimum capital of $10,000 for banks in small villages. Owing to strong opposition in certain quarters, this was reduced to $5,000 by way of compromise. Without entering at this time into a full discussion of the demerits of such reduction, I am constrained to say that, in my opinion, such diminutive capitalization cannot but work