The St. Charles herald. [volume] (Hahnville, La.) 1873-1993, 1917-03-10
FARM LOAN ACT.
I. The Cooperative Banking
system Established Under II.

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(By Frank r. Wilson, federal ioan Nv
reau, Washington. d. CD
The federal farm loan act, adopted
in June, 1916, and signed by Presiden
Woodrow Wilson shortly after. creates
a comprehensive, cooperative banking
system to lend money to farmers ane
prospective farmers for purposes OF
land purchase, farm development, ane
the refunding of indebtedness. ~=r.r
The system consists Of two main al
visions: a money-assembling agency
through which the accumulation ano
savings Of the country are gathered IN
and q money-lending agency, through
which this money is distributed 1or
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
| eurities in the open market.
The establishment of this co-opera-
| tive banking system was made neces-
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 a
time to run; because interest rates TO
farmers have been too high, ranging
from per cent per annuin to per
cent per month; and because private
money-lending agencies had not real
lied the reflex advantages to them
selves of long time, amOrtiZed loan
to the farmers.
Machinery for Its Application.
The machinery provided in the APP
plication Of the farm loan act has
three main divisions:
First-The federal farm loan board
In Washington, d. c., composed of the
secretary of the treasury. William G.
McAdoo, chairman ex officiO; George
w. Norris, farm loan commissioner;
Herbert Quick. Capt. w. S. A. Smith
and Charles e. Lobdell.
Second-The II federal loan banks
throughout the United States.
Third-The national farm loan asso-
ciatiohs, 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 II 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 a system
Of cooperative self-governmentw will be
inaugurated under which the associa-
tons of farmers will direct these big
institutions, under the super
vision Of the federal farm loan board. |
Each Of the IL federal land banks
starts business with paid-up capital
Of $3.50, 1000, subscribed by the govern
ment, IL private investors do not SUBJ |
scribe it 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 ca
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 Rnds money and takes
1rst mortgages on farms in exchange,
t issues bonds against these mortgages
md sells the bonds to produce more
honey to lend.
The bonds issued by one bank are
secured by the assets of all the banks
operating under this system, and the
ate of interest on the bonds is adjust
ID by supply and demand. The rate
It interest charged to members Of farm
oan associations for money which they
'orrow from the banks, cannot exceed
y more than per cent the rate of
interest paid on the bonds. This mar.
i'm Is provided 10 pay the cost Of
perating the banks. So, If the bonds
ell at per cent and the cost of
perating is 1 per cent. the interest |
ate to the fariner-borrower will be
per cent. If the cost is held down
0 one-half of one per cent, the inter.
st rate to the farmers would be Az
err cent.
~ |
So, briefly, the members of the as.
ociations Of farmers borrow from the
anks; the banks issue bonds against
no farm mortgages and borrow money
rom investors; the. farmers invest an
mount equal to one-twentieth of the
mount they borrow, in order to pro.
lde an increasing capital for the
anks, and the whole process is done
nder governmental supervision and
1thout profit to any individual.
No Hindra,ee.
Pop, win you answer mo ora h~.,.