The herald., 1917-03-08
FARM LOAN ACT.
I. The Cooperative Banking
System Established Under Il.
(By Frank l.. Wilson federal loan bu.
WEsLingtn,l L.

| tBy Frank l.. Wilson. federal loan bu-
| reau, Washington. u. c.
The federal farm loan net, adopted
In June, 1916, and signed ny President
! Woodrow Wilson shortly after. creates
a comprehensive, cooperative banking
| system 10 lend money to farmers and
| prospective farmers for purposes OF
! land purchase, farm development, and
, the refuma!ng &C Indebtedness.
The system consists Of two main di-
visions; mOncy-asscmbling agency,
, through which the accumulation and
, savings Of the country are gathered in.
and a monCy-IcndinE agency. through
which this money is distributed for
agricultural 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 Sc
Curit!es in the open market.
The establishment of This Co-Cp"ra-
| tive banking system was made ncccs-
sary by reason Of the fact that banks
in most parts Of the United States
have not possessed the facilities TO
properly take care OF farm loans be-
cause these loans required too long Il
time TO run: because interest rates 10
farmers have been too high, ranging
from per cent per annun to > Fer
cent per month; and because private
inOncy-lending agencies had not real
lied the reflex advantages To them
selves Of Il long time, amortiZcd loan
10 the farmers.
Machinery for Its Application.
The machinery provided il the ap-
plication of the farm loan act has
three main divisions:
FirSt-The federal farm loan hoard
in Washington. d. c.. composed Of the
secretary Of the treasury. William G.
McAdoo, chairman ex OfIiclo: George
w. Norris. farm loan commissioner;
Herbert Quick. Capt. w. S. A. Smith
and Charles T.. LObdell
Second-The l. federal loan banks
throughout the United States.
Third--The national farm loan asso-
Citations. each composed Of ten or more
farmer-bOrrOwers, which associations
secure loans for their members from
the federal land banks.
The federal farm loan board is in
charge Of the entire system. Its first
important duty was to divide the coun-
try into - bank districts and locate
one federal land bank in each. This
board also provides the banks with
temporary governing boards during
the process Of growth. Later q system
Of cooperative self-government will be
inauguratcd under which the associa-
tons Of farmers will direct these big
financial institutions, under the super
vision of the federal farm loan board.
Each OF the IL federal land banks
starts business with a paid-up capital
Of S750.O00, subscribed by the govern
ment, IL private investors do not SUBJ
scribe 1t within 80 days after the books
are opened. These banks have the
right TO lend to national farm loan as
sociations up to 20 times the capital
stock Of the banks. The lending CO.
pacity Of these banks is automatically
increased by requiring the farm loan
associations to reinvest in the capital
stock OF the banks one-twentieth of
the amount their members borrow.
Thus the capital stock of the banks in
creases In the same ratio as their
loans. The banks acquire additional
money for lending by selling their own
bonds to investors.
Without Profit to individuals.
When bank lends money and takes
first mortgages on farms in exchange,
1t issues bonds against these mortgages
and sells the bonds to produce more
money to lend.
The bonds issued by one bank are
secured by the assets Of all the banks |
operating under this system, and the |
rate Of interest on the bonds is adjust |
ed by supply and demand. The rate
of interest charged to members Of farm |
loan associations for money which they i
borrow from the banks, cannot exceed !
by more than per cent the rate Of !,
interest paid on the bonds. This mar
gin Is provided to pay the cost of
operating the banks. So. If the bonds
sell at 4 per cent and the cost Of |
operating Is per cent, the interest |
rate to the farmer-borrowers will be !
5 per cent. If the cost is held down
to one-haf of one per cent. the inter. !
est rate to the farmers would be Az
per cent.
So, briefly. the members Of the as
sociations Of farmers borrow from the
banks; the banks issue bonds against |
the farm mortgages and borrow money
from investors; the farmers invest IN
amount equal to one-twenueth Of the
amount they borrow, in order to pro-
vide an increasing capital for the
banks, and the whole process Is done
under governmental supervision and
without profit to any individual.
No Hindranee.