The Leon reporter. (Leon, Iowa) 1887-1930, 1916-11-30
Federal Banks to he Established on
February 1, 1917.

There are to be twelve federal
land banks. One will probably be
located in Iowa.
The original capital stock of these
banks, out of which they will make
their first loans to farmers will be
subscribed by the federal govern
ment. The stock of each will be
$75O.000.
Afterwards, the principal source
of money for loans to farmers will
be from the sale of debenture bonds.
Each bank will be allowed to issue
such bonds to the extent of twenty
times it's capital, but the bonds will
have to be covered dollar for dollar
by the pledge of first mortgages on
farms as collateral security.
Farmers desiring loans will not
apply directly to federal land bank
but to a local organization of farm
ers known as federal farm ,an as
ISOLATION. Such an association will
have to include at least ten farmers
who desire loans, but may, of course
include many more
Each borrower must subscribe to
the stock of the local farm loan as
cent of his loan The associations
in turn will subscribe to an equal
amount of the stock of the federal
land bank. AS soon as enough is
thus subscribed, the stock held by
the federal government will be re-
tired The local associations, which
the farmers control, will then own
and control the bank completely.
The farmers will be permitted to
borrow the money necessary to pay
for his stock in the local association,
if he desires. Thus the farmer who
needs neat loan of $1,000 and who
does not care to pay cash for his
stock, will give his note and mort
gage for $1,000, receiving $1,000 in
cash and certificate for ten shares
$500 worth of stock.
This will not be the same as pay
ing a commission of $50 for the
loan, because the stock will be enti-
tied to dividends, and Is in fact like
ly to receive dividends. Still furth-
er it's face value will be repaid to the
borrower when he pays up his loan.
In other words the man who borrows
$1,000 will actually discharge his
debt by paying $1,000.
The local association will endorse
each mortgage taken through 1T.
The liability of the farmer, as a
stakeholder, however, will be limited
to an additional sum equal to the
stock he holds, and no more.
The purpose Of the five per cent
subscription to the stock of the asso-
citation and the liability Of the stock
holder, is to increase the security of
the bonds and thereby make them
sell on more favorable terms. 1t
will give the lender an extra margin
of safety and thus enable borrowers
to get a lower rate of interest.
The law limits the rate of interest
which shall be paid on the bonds to
more than 5 per cent. 1t also provid-
es that the rate charged to farmers
shall not exceed the rate on the de-
benture by more than per cent, in
other words, that it shall not be
higher than 6 per cent in any case.
Should the bank be able to borrow
money on it's bonds at less than per
cent, and to conduct it's operations
on a margin for expenses of less than
/ per cent, the interest rate paid by
the farmer will be that much reduc-
ed. Thus if the bonds should sell at
per cent and the operating expens-
es should be kept at one-half of l
per cent, the loans to the farmers
might be made at Az per cent.
Loans may be made up to SO per
cent of the value of the buildings
and improvements on such land.
Loans will be made only for speci-
fed purposes and only to actual
farmers or those about to become
farmers.
Loans will be made for period of
not less than five nor more than for
ty years at the option Of the borrow
er. They must be on the amortiza-
ton plan, that is they must require
in addition to interest, annual or
semi-annual payment of part of the
The borrower, however,
may, after the first five years pay
larger amounts or the entire debt
whenever he desires.
It will be seen that the chief ways
in which this new plan differs from
the ordinary practice of making farm
loans are, first in the use of deben-
ture bonds based on the mortgages
as a group, and second, in the pro-
vision for long time loans with
gradual repayment.