Brighton Area Historical Society

Webster’s Collegiate Dictionary- Banking: an establishment for the custody, loan, exchange or issue of money, for the extension of credit and for facilitating the transmission of funds by drafts or bills of exchange.

In England banking began as a private business. In the United States it became a semi-private business authorized and sanctioned by the government via statures and law. Banks issued their own bank notes/script. These became depreciated and worthless when a bank failed.

Following the 1812 War, the U.S. finally gained control over the Northwest Territory. With the opening of the Erie Canal I 1825, settlers from the eastern states surged into Michigan. The majority were anxious to improve their way of life. A high percentage of the state’s new settlers came from New York. Noting that state’s economic growth as a model Michigan leaders borrowed New York lawns dealing with banking, among others. Much of Michigan’s first Constitution was based on the New York Constitution.

Michigan’s strategy of economic development followed the national policy of settling people on the land to be accompanied with the establishment of units of government as soon as possible. To accelerate this development lines of transportation were designated and local banks were to be launched.

These banks provided immediate income, usually in the form of credit or bank-issued notes, to the farmer for produce and crops sold. Farmers received credit for purchase of land, seed, equipment, etc. Banks also extended credit to village merchants to launch a local enterprise, to businessmen (millers, sawyers, blacksmiths, etc.) and to professional persons (doctors, lawyers, etc.) to establish themselves in the pioneer farm community.

By 1832, pioneers were acquiring land in Livingston County. Brighton Township was still part of Green Oak Township. Just over the county line, in Oakland County, where the Huron River was crossed by the Grand River Trail, a sawmill and house were built by Joel Redway. Alfred A. Dwight, one of many entrepreneurs, platted the town of Kensington in 1836. By then there was already a post office the name of which was changed from Lyon to Kensington that same year. (In operation until 1902.)

Dwight, along with Sherman D. Dix, who had taken up 82 acres in Section 17 of Green Oak Township in 1832, were members of the Board of Directors of the Bank of Kensington; organized December 12, 1837. Completely within the state’s corporation laws of the time, the bank was one of the many "Wild Cat" banks. (So named because their nearest neighbors often were wild cats.)

The "Free Banking: law, passed by the Michigan legislature January, 1837, was an attempt to speed the state’s economic development which was based on agriculture. To encourage local manufacturing businesses and improve transportation, which could be financed by local bank credit, general incorporation statures regulating commercial ventures were enacted, including banking corporations.

Banking was "free" in that the bank charter requirement of 2/3 vote of the Legislature was largely ignored; only 30% of its stock was necessary in "Good and sufficient security" to protect it’s bank notes; and county clerks and treasurers (who had a vested interest in the development of their county) were influential in the approval process.

"Free" banks, for short term investment projects, were successful in normal times. However, hard times caused bank investors and customers to request specie and the banks would be forced to sell land (the principal collateral) and other capital, at t loss. This often resulted in bank failures.

By June, 1837, the "Panic of 1837" was underway and the Legislature ruled that a bank did not have to pay in specie. Thanks to the "Wild Cats" banking laws of the state at the time, banks were started on a shoestring throughout the populated areas of Michigan. Since it would be another 11 months (May, 1838) before the general banking law governing the issuance of bank notes would go into effect, "Wild Cat" banks proliferated in the interlude of the 46 in the state the Bank of Kensington was as wild as any of them. (the bank note pictured below is from a private, local collection.

To promote the evolution of the new state of Michigan from one of forest trails to one with a progressive climate for development, the advancement of the banking business held a high priority. Minimum capitalization seems to have been the norm in the organization of a local bank. Creative and varied means were employed to determine the origin of the currency generated. These included state bonds and mortgages on land, unimproved real estate and bank shares, besides precious metals.

An 1838 statewide analysis showed that 75% of the loans issued went to those most closely connected to the bank, the bank directors and stockholders; these were the ones who were most anxious for a community to develop and thereby had the most to gain.