Under the existing laws regulating the business of banking in this State we have some very peculiar conditions which prove embarrassing to those officials whose duty it is to execute these laws. To begin with, the Auditor of State is the official who is responsible for the enforcement of the several banking laws. He it is who shoulders the responsibility and bears the public censure when a bank goes wrong; but we find that no matter how rigorously he uses his authority, he is severely handicapped by a lack of sufficient authority. For instance, the law may say that a certain thing shall not be permitted, but it fails to provide a penalty to be inflicted in case of a violation. To be sure he has authority to close a bank in case its assets are improperly used, but in cases of minor offenses committed by some official of a bank it would work great injustice to the bank's stockholders, and the financial community in general, to tie up its assets for an indefinite time in a receivership. What is needed is a law providing penalties of the proper nature for the violation of all parts of the statutes, and the penalties should include imprisonment. And it is further suggested that the Auditor of State be given power to remove any official of a bank for cause, or at least to suspend him pending an action for removal before a court. It is the policy of the bank department to correct a wrong in a quiet way rather than to prosecute offenders as soon as they are found out, except in cases of vicious and intended violations of law. The banker has always been given the benefit of the doubt, and cases of law violation through ignorance or errors are corrected with a warning. Then, if the act be repeated, more drastic steps can be taken. It is found that this plan is the most beneficial plan of enforcing laws, for it not only does not result in prosecuting ignorant offenders, but where a man has had one warning he is not likely to offend again and face two charges. A law is also needed regulating the amount of money which a bank or trust company may lend to any one person, firm or corporation, and this amount should be based on the capital and surplus of state banks, and the capital of trust companies and private banks. This discrimination is made because private banks and trust companies are not required by law to set aside a surplus. And a vital necessity is a law prohibiting officers, directors and employes of state and private banks from becoming indebted to their banks, and providing as a penalty both fine and imprisonment; for it can be shown that more banks are ruined through losses in loaning to their own officers, directors and employes than from any other one cause, and as proof of this we have the trust companies of Indiana, wherein this is absolutely prohibitted, for no depositor has ever lost a dollar through the failure of a trust company in Indiana. Inasmuch as it is the duty of the Auditor of State to enforce the laws pertaining to the business of banking, it is found that the existing laws are, in part, impractical, for the bank records are divided between his office and that of the Secretary of State. Under the present laws a trust company is incorporated by the Secretary of State, but it must certify to the Auditor of State that its capital has been paid in according to law, and receive a certificate of authority to commence business, before it can open for business; a state bank is incorporated by the Secretary of State and certifies to him that its capital has been paid in according to law, and the Auditor of State has no means of officially knowing of its organization; a private bank files its articles of co-partnership and its certificate of payment of capital with the Auditor of State. By the foregoing it will be seen that a state bank is organized wholly in the office of the Secretary of State, a private bank is organized wholly in the office of the Auditor of State, and a trust company is organized through both offices, from the very nature of which a great amount of unnecessary confusion arises. Inasmuch as the law has provided for a bank department in the office of the Auditor of State, it should undoubtedly be the duty of that department to attend to the work of bank organization, and a law should be passed providing that all papers pertaining to the organization of all classes of banks should be filed with the Auditor of State, and an important feature which should be incorporated in such a law would be a provision authorizing the Auditor of State to refuse a charter to a bank in case he found that the community in which it proposes to conduct its business was already sufficiently supplied with banking facilities, or that the people behind the proposed organization were not qualified to conduct a bank. Such a law would eliminate the possibility of existence for many a weak bank which might place in jeopardy the money of the community. Under the present laws the bonds of the presidents and cashiers of state banks are required to be filed with the Secretary of State, and a fee of one dollar for each bond filed is assessed. The bonds of all officers and employes of trust companies which are required to give bonds by their boards of directors are filed with the Auditor * of State and no fee is charged. Officers of private banks are not required to file bonds. It is the duty of the Auditor of State to see that the banks and trust companies have the bonds of their officers on file, as is provided by law. This is readily done in the case of the trust companies, but the bonds of state bank officers are all in the office of the Secretary of State and he has no official knowledge of their existence. It has been found in a great many instances, almost in a majority of instances, that these bonds either do not answer the requirements of the statutes or they are in insufficient amounts, or that they allow bonds to run for several years, while it is required that new bonds be filed each year. Furthermore, the matter of a fee works an injustice to the state banks, for trust companies are not required to pay a fee. Also, private bank officials should be required to file bonds, for their duties are almost identical with those of state bank officers, and it is not right that depositors in private banks should not be given the protection a bond affords. It is therefore recommended that a law be passed providing that the bonds of presidents and cashiers of state and private banks, and the presidents and secretaries or treasurers of trust companies be filed annually with the Auditor of State, and a fee of one dollar be assessed for each bond filed. And these bonds should meet the approval of the Auditor of State, as regards form, sums and sureties. A weak point in the law regulating loan, trust and safe deposit companies is that there is no provision made whereby the Auditor of State may take charge of a trust company which is insolvent or conducting its business in an unlawful or unsafe manner pending the appointment of a receiver. Under the present law all he may do is to present the facts to the prosecuting attorney, and upon so doing the case passes entirely out of the hands of the Auditor of State. During the interval pending the appointment of a receiver a trust company official with malicious intentions could work great harm to the depositors. The law should be amended to provide that the Auditor of State, or his representative, should take charge of the assets and records of an insolvent trust company, or one conducting its business in an unauthorized or unsafe manner, pending an adjustment of its affairs. The board of directors of trust companies should be required to meet regularly at least once a month and pass on loaus made and attend to such other business as may present itself. |