The Michigan State Bank at East Lansing

As East Lansing experienced rapid growth in the 1920s, a group of investors decided to establish the city’s second bank^† to compete with the East Lansing State Bank (ELSB). The “Michigan State Bank at East Lansing” (MSBEL) was founded in January 1927 with a capitalization of $5,000—a modest sum given that more than a decade earlier, ELSB had started with four times that amount.¹

It seems that no one involved with MSBEL was paying attention to the prevailing trends—namely, ELSB’s significant growth and dominance in the local banking scene, even as it invested heavily in constructing a new bank building. Less than a week after MSBEL announced its incorporation, ELSB doubled its capitalization to $100,000—twenty times that of MSBEL—and nearly doubled its board of directors, from seven to thirteen members. Two weeks later, citing ELSB’s recent expansion which “made a second bank less of an immediate necessity than when plans were first laid,” MSBEL “indefinitely postponed” its launch and returned its investors’ money.²

However, this setback did not deter the bank’s planners for long. Just six months later, they tried again, incorporating on July 21, 1927, with a more substantial $25,000 capitalization from forty-seven investors. The officers of the Michigan State Bank at East Lansing were:

• William W. Potter, president, who was also the Attorney General of Michigan
• Bert S. Harris, vice president, also cashier at the Dimondale State Bank
• Forrest F. Musselman, vice president, founder of the eponymous real estate agency that more than a century later remains a family-operated business in East Lansing
• Roland Spalding, cashier, formerly of the Perry State Bank

The board of directors included the officers and the following persons: Herman K. Vedder, Guy E. Crook, Daniel G. Barr, Frank E. Church, and Hugh McPherson. The bank opened for business on Saturday, September 10, 1927, at 218 Abbot Road, the southernmost suite of the College Manor building—today, part of the longtime home of Beggar’s Banquet.³

The opening announcement touted the bank as “specializ[ing] in student accounts” along with general banking business, but did not specify whether that meant college students or a younger clientele. Possibly the latter: starting in 1928, the bank ran daily ads in the weeks leading up to Christmas: “SAVINGS ACCOUNT — Start the kiddies out right with this sensible gift. Michigan State Bank, East Lansing.” Similar campaigns ran in 1929 and 1930.⁴

Unfortunately the 1931 Christmas campaign never had a chance to get underway, because on Friday, November 6, 1931, the bank did not open. It is not clear exactly what happened, but the closure does not seem to have been caused by malfeasance or a run on the bank. From all appearances, the Michigan State Bank at East Lansing simply reached a point of insolvency as the Great Depression set in. As the Lansing State Journal obliquely put it, “The period of economic stress determined the bank was not required in a community with so many other larger and financially powerful institutions.” Almost immediately, the East Lansing State Bank “issued orders that loans would be made to any students or townspeople whose finances were affected” by the closure.⁵

The state put MSBEL into receivership and appointed Clayton F. Jennings (1899–1963), a prominent Lansing attorney and expert in corporation law, as receiver. “Banking officials [unnamed] expressed the opinion that the prompt closing of the bank would conserve its assets to the extent that it would pay out 100 cents on the dollar.” This pronouncement would prove optimistic.⁶

Jennings determined the bank’s assets only covered about 85 percent of the claims against it, and later amended that estimate to 75 percent. Although some adjustments and reductions to the bank’s liabilities were found over time, that “100 cents on the dollar” mark could not be approached. In the end, it took ten years of occasional dividends for the claims against the bank to be closed out, with “the final disbursement [in December 1941] bring[ing] the total payoff to 80 percent.”⁷

The Michigan State Bank at East Lansing was started during the optimistic boom time of the mid-to-late 1920s, but it ended up as just another one of the thousands of banks that failed in the years immediately following the 1929 stock market crash. In the end, it was in business for just over four years.

1. LSJ, 6 Jan 1927, p. 19. ↩︎
2. LSJ, 12 Jan 1927, p. 15; 26 Jan 1927, p. 17. ↩︎
3. LSJ, 22 Jul 1927, p. 1; 5 Sep 1927, p. 2. ↩︎
4. LSJ, 5 Sep 1927, p. 2; 3 Dec 1928, p. 19. ↩︎
5. LSJ, 6 Nov 1931, p. 30. MSC Record, 37(3), Nov 1931, p. 9. ↩︎
6. LSJ, 3 Aug 1963, p. 1; 6 Nov 1931, p. 30. ↩︎
7. LSJ, 31 Dec 1932, p. 2; 5 Dec 1941, p.28. ↩︎

1. † The East Lansing Building and Loan Association started in 1919 but it was a thrift, not a commercial bank.↩︎