The Barre daily times. (Barre, Vt.) 1897-1959, 1917-01-15
"The Cooperative Banking System Es-
tablished Under the Farm Loan Act.

| {By Frank r. Wilson, federal farm loan
bureau Washington, y. O.
The federal farm loan act, adopted in
June, 1916, and signed by President
Woodrow Wilson shortly after, creates a
comprehensive. cooperative banking sys-
| tenn to lend money to farmers and pros
| pectiye farmers for purposes Of land pur-
chase, farm development and the refund
| ing OF Indebtedness
| The system consists Of two main d.
visions: money assembling agency,
through which the Accommodations and
| savings of the country are gathered in,
and q money lending agency, through
which this money is distributed for agri-
cultural uses.
The farm loan act, in brief, pools the
farm mortgages OF the nation issues
collateral trust security against these
pooled mortgages, and sells these sectIri-
ties in the open market.
The establishment of this cooperative
banking system was made necessary bv
reason of the fact that banks in most
parts of the United States have not pos
sessed the facilities To properly take care
of farm loans because these loans re.
quired too long time to run; because
interest rates to farmers have been too
high, ranging from per cent per annum
to per cent per month; and because
private money lending agencies had not
realized the reflex advantages to them
selves Of a long time, amortizcd loan to
the farmers.
The machinery provided in the appli-
cation of the farm loan act has three
main divisions:
First--The federal farm loan board in
Washington, D. C., composed of the sec
rotary of the treasury. William q. Me
Adoo chairman ex-officio. George w.
Norris, farm loan commissioner. Herbert
Quick. Capt w. S. A. Smith and Charles
f. Lobdell.
Second--The IL federal land banks
throughout the United States.
Third--The national farm loan asso-
Citations, each composed of 10 or more
farmer borrowers, which associations Sc
cure loans for their members from the |
federal land banks.
The federal farm loan board is in |
charge of the entire system. Itsfirst i'm |
portant duty was to divide the country /
into IL bank districts and locate one fed |
eral land bank in each. This board also |
provides the banks with temporary gov
erning boards during the process of
growth. Later system of cooperative
self government will be inaugurated un.
der which the associations of farmers
will direct these big financial institutions
under the supervision of the federal farm
oan board.
Each of the IL federal land banks
starts business with paid-up capital of
s750,000, subscribed by the government,
4 private investors do not subscribe il
within 80 days after the books are
opened. These banks have the right to
end to national farm loan associations
Up TO 90 times the capital stock of the
'anks. The lending capacity of these
,anks is automatically increased by re-
Iuiring the farm loan associations to re-
invest in the capital stock of the banks
ne-twentieth of the amount their mem
ers borrow. Thus the capital stock of
he hanks increases in the same ratio as
heir loans. The banks acquire addition
! money for lending by selling their own
onds to investors.
When a bank lends money and takes
rst mortgages on farms in exchange. it
'sues bonds against these mortgages and
ellis the bonds to produce more money to
nd
The bonds issued BY one hank are So
ured by the assets Of al the banks OPP
rating under this system and the rate
interest on the bonds is adjusted by
lpply and demand The rate OF interest
larged TO members of farm loan asso-
stions for money which thew borrow
ON the banks cannot exceed BY more
ian per cent the rate az interest paid
D the bonds. This margin is provided
pay the cost Of operating the banks
D. II the bonds sell at 4 per cent and the
st Of operating is ! per cent. the inter
{ rate to the farmer borrowers will b.
per cent. II the cost is held down 10
le- half Of I per cent. the interest rate
the farmers would be AZ per cent
so. briefly. the members Of the sssocia-
ons o. farmers borrow from the banks:
e banks issue bonds against the farm