After proper allocation of funds, the available balance or surplus on September 30, 1907, amounted to $13,678,138.47 as against $11,291,445.29 at the end of the previous year.

The State debt increased during the last fiscal year from $10,630,660 to $17,290,660. This was due to the issue of bonds for canal and highway purposes. The debt is distrib

t

On September 30, 1907, the sinking funds for the canal and highway debts amounted to $9,573,055.81, leaving the balance of debt unprovided for $7,717,604.19. The only debt maturing during the current fiscal year consists of the remaining $200,000 Adirondack Park bonds which mature on February 1, 1908.

CANALS.

The amount of canal improvement work now under contract amounts to $22,400,000; contracts have been awarded during the past year amounting to $7,067,000; and plans have been finished for the award of contracts amounting to $7,042,000. The State Engineer estimates that plans for the entire work will be completed in from ten to twelve months. It is of manifest importance that this work should proceed with all possible speed consistent with expert care.

I renew my recommendation of last year that in place of the present expensive method of appraising lands acquired for this purpose, the matter of appraisal and the making of agreements of purchase or for the settlement of damages should be committed to the Superintendent of Public Works subject to the approval of the Canal Board.

HIGHWAYS.

During the past year 385 miles of State roads have been built and 564 miles in addition have been contracted for. Plans are ready for 1,093 miles of road. It is understood that of these last, bids will be received in January for 201 miles, and that the remaining 892 miles represent roads for which the counties have already appropriated their share of the cost of construction, but for which contracts cannot be let until appropriation of the State's share has been made by the Legislature.

In making the large expenditure which is contemplated for improved highways, the object is to execute a comprehensive plan in the interest of the whole State, furnishing through lines connecting centers of population and proper lateral lines to provide each section with adequate means of communication. The subject of needed improvement in our system of highway development and maintenance is one deserving of your most careful consideration, in which you will be aided by the report of the committee of the Legislature specially appointed to examine the matter.

BANKS AND TRUST COMPANIES.

The recent financial disturbance has directed attention to the importance of amending the law relating to banks and trust companies. There is much reason for gratification in the fact that for the most part our institutions were found to be sound and that only a few were compelled to give way despite an unparalleled strain. But every practicable means should be adopted to prevent repetition of reprehensible practices and to assure the proper management of the financial institutions chartered and supervised by the State, upon whose stability and prosperity the interests of our people in every walk of life so largely depend.

In order that the matter might be considered with appropriate promptness and in the light of expert opinion, I requested six eminent bankers representing respectively the different classes of institutions, to collate facts, to receive suggestions and to express their views with reference to necessary changes

in the law of the State. These gentlemen, Messrs. A. Barton Hepburn, Edwin S. Marston, Edward W. Sheldon, Algernon S. Frissell, Stephen Baker and Andrew Mills, undertook the task as a matter of public duty, serving without compensation and defraying their own expenses. I submit to you their valuable report, inviting your most careful consideration of its recommendations and also of those contained in the report of the Superintendent of Banks.

It is advised that there should be an enlargement and more careful definition of the powers of the Superintendent of Banks with reference to the organization of banks and trust companies, the establishment of branches of either, and mergers or the control of one institution by another. Recent events have demonstrated the necessity of providing effective means for preventing the exploitation of banks and trust companies and the acquisition and use of a control of a number of institutions to facilitate selfish schemes opposed to sound banking. If suitable restrictions are imposed in explicit form and with appropriate penalties, ensuring adequate knowledge and proper action on the part of the board of directors with regard to loans and other transactions; preventing the deposit of moneys of one institution with another in order that the officers, directors, or stockholders of the former may obtain desired credits from the latter; limiting the amount which may be loaned by any bank or trust company upon the stock of another financial institution; reducing the amount which may be loaned upon collateral to any one interest; and erecting proper safeguards against loans and investments in aid of schemes of promotion represented by unmarketable securities; and if in addition suitable means are provided for the enforcement of the rulings of the Superintendent of Banks with regard to improper or unsafe practices, the security of our financial institutions, and the confidence which springs from just reliance upon their proper management, will greatly be strengthened.

The members of the committee are not agreed upon the subject of reserves. The maintenance of reserves, to the highest extent suggested, of course will not protect against the conse

quences of improper investments or save an institution that is in an unsound condition. But it is apparent that the existence of demand obligations requires reserves to be maintained and that they have the salutary tendency to prevent an undue expansion of credits. The arguments that are adduced with respect to the different reserve plans which are proposed I submit to your consideration.

With regard to trust companies, however, the matter of reserves is a phase of a larger question. It was not contemplated by the law relating to trust companies that they should engage in the same business as banks. Their powers were defined with reference to the execution of trusts and to action in fiduciary capacities, with such incidental privileges as were deemed consistent with the general purposes. In practice, however, they have engaged in the banking business upon a large scale and the moneys deposited with them are for the most part payable on demand. Despite this development of their business it was not until 1906 that they were required to keep any cash reserve, and this is much less than that required of banks. Whatever else may be said on the subject, it would seem clear that business of the same sort should be transacted under the same conditions. It is not the name of the institution which justifies the imposition or the omission of the restriction, but the kind of business.

In my judgment nothing will meet the situation with fairness to the interests of the banks, of the trust companies, and of the public which deal with both, which does not require that each distinct field of operation should carefully be delimited and that any corporation transacting business in a particular field shall be subject to the obligations and restrictions which pertain to that field. Whatever reserves, or other restrictions, may be deemed advisable with reference to demand deposits in the case of a bank should be equally obligatory with reference to the same sort of deposits in the case of a trust company. Similarly the savings bank business is a distinct field, and business of this sort should be transacted only by institutions subject to the restriction of the savings bank law.

The amount of legal expenses incident to the liquidation of insolvent banking institutions in this State is a grave scandal to which the committee of bankers fittingly calls attention. I recommend that provision be made for liquidation under the supervision of the Superintendent of Banks and that he shall have authority to appoint liquidating agents and necessary assistants to enable him to wind up the business in the most speedy and economical manner. I do not think that there should be an attempt to oust the court of its jurisdiction to appoint receivers. But the present provisions of law for exclusive liquidation through receivers appointed by the court may be changed and the courts should be left to exercise their jurisdiction in cases where they deem it necessary to interfere with the ordinary course of liquidation. And it should be provided that application for the appointment of receivers by the court shall be made in the judicial district in which the corporation has its principal place of business and that proper notice of the application shall be given to all creditors. Similar provision should be made for the liquidation of building and loan associations.

INSURANCE.

The provisions of the Insurance Law, recently enacted, with reference to the business of life insurance, were designed to ensure conservative management and to prevent resort to wasteful methods and the recurrence of the evils which had been disclosed. There is no business more closely related to the welfare of the people, especially to the thrifty and provident, and none which should be more carefully safeguarded. I recommend to the Legislature that, while any suggestions of amendments should receive proper consideration, there should be extreme caution in making any changes, and no changes should be made unless it clearly appears that they are needed to conserve the interests of the policyholders.

The need of improving the standard form of fire insurance policy has been urged, and I present the subject for your consideration.