The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-07-12
Chartering Is Lax

According to many students of
finance, the biggest weakness in re-
gard to banks in recent years has
been the lax method of chartering
them. Not so many years ago a
town in Indiana with population
Of approximately 1000 had five
banks. The Department of Finan-
cial Institutions, of which Richard
A. Mckinley is director, has cor
rected this by usurping the charter
privilege for itself and making the
bank organizers prove that there is
a need for the proposed bank. This
method is similar to the preliminary
steps taken before the introduction
of a new public utility.
A naive, but effective, method of
examination for banks has been set
up to prevent any abuses. The Sys-
tenn consists of sending out exam
liners in groups of two-one a DEM
ocrat, the other Republican. More
over, the hit-and-miss method of
making examinations at a set time
has been discarded and now the de-
partment can make as many probes
as it desires.
Banks have two functions to per-
form. The first is to protect the
depositorS' funds and the second is
to earn a return on the money which
has been invested in the stock of
the bank. Sometimes these con-
f1icting ideas bring about an I'M
healthy condition. The department,
realizing this, has attempted to act
for both interests by limiting the
interest which may be made depos-
itors and the dividend which may
be paid stockholders.
Every bank and trust company is
required to publish annually as
many statements of condition as
may be deemed necessary.
Directors Regulated
Directors of banking institutions
also come in for a little regulation
under the departments provisions.
Every such official must own at
least $1,000 par value of stock, this
amount being double the former
figure. Absentee directors" long a
knotty problem, will be curbed by
a provision which makes it manda-
tory for the bank to compile a rec
ord of the number of meetings held
and the number each member of
the board attends. The directorate
also compelled to have two indie
pendent audits made yearly of the
status of the institution they rep
resent.
Fiduciary relationships of banks
have grown remarkably fast since the
turn of the century, but Indiana has
done little to segregate them from
the ordinary functions of a COM
mercial bank. Under the present
regulations any trust activities of a
bank must be carried on in a
separate trust department and all
resources of this branch must not
be intermingled with the resources
of the commercial branch of the
bank.
Safe-keeping of trust funds has
been the sacred COW of banking SEN
tlmeat for years. Consequently.
some state supervisory bodies in an
effort to afford the maximum of
protection have adopted legal lists
of investments for trust funds. For
many years in this state the COM
mon law governed. It is now pro-
vided that such trust funds may be
invested only in special groups
which the department has set out.
Penalties for violation of the va
rious provisions of the Indiana Fl
nancial Institutions Act reside with
the department They are believed
to be sufficiently drastic to make
banks and trust companies adhere
scrupulously to the law. It is also
provided that fidelity bonds be given
Tor all officers. Blanket bonds
range from $4,000 to $4,000, both de-
pendent on the volume of deposits.
Touches All Phases
This code laid down for the reg
ulatlon Of financial institutions is
one of the most comprehensive in
the country. The Department of
Financial Institutions exercises some
sort of supervision over virtually
every phase of the complex banking
structure.
As of June 5, last, there were 585
banks in the state, of which 428
were in operation and 1872 were in
the process of liquidation. Of the
162 banks being liquidated the work
in connection with 121 of them was
being carried on by the departing it
while the remaining Al were vol n
tary operations. In addition to his
number there are five savings nks
scattered throughout the sta.
Further analysis reveals tn. In
diana is about the weakest state in