The Republican. [volume] (Oakland, Md.) 1877-current, 1917-01-18
FARM LOAN ACT,
WHAT IT PROVIDES
Article One, by Frank r. Wilson,
Federal Farm Loan Bureau.

a comprehensive, cooperative banking
system to lend money to farmers and
prospective farmers for purposes of
land purchase, farm DEVELOPMENT, and
the refundlng of indebtedness.
The system consists of two main
divisions; a Notwithstanding agency,
through which the Accommodations and
savings of the country are gathered IN,
and a money-lending agency, through
which this money is distributed for
agricultural uses.
The farm Loan Act, in brief, pools
the farm mortgages of the nation;
issues a collateral trust security against
these pooled mortgages, and sells these
securities in the open market.
The establishment of this cooperative
banking system was made necessary 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 because these loans
required 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 themselves of q long time, amortized
loan to the farmers.
The machinery provided in the sppli-
cation 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 -of-ficio, George
W. Norris, Farm Loan Commissioner,
Herbert Quick, Captain W. S. A.
Smith, and Charles E. Loddell.
Second-The twelve Federal land
banks throughout the United States.
Third-The national farm loan as
sociations, each composed of ten or
more farm borrowers, which associa-
tons secure loans for their members
from the Federal land banks.
The Federal Farm Loan Board is
IN charge of the entire system. It's first
important duty was to divide the
country into twelve 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 lf-government will be
inaugurated under which the associa-
tIons.of farmers will direct these big
financial institutions, under the super
vision of the Federal Loan Board.
Each of the twelve Federal land
banks starts business with a paid-up
capital of $3.50, 900, subscribed by the
government, if private investors do
not subscribe it within thirty days after
the books are opened. These banks
have the right to lend to national farm
loan associations up to twenty times
the capital stock of the bank. The
lending capacity 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 increases in the same ratio as
their loans. The banks acquire addi-
tional money for lending by selling their
own bonds to investors.
When a bank lends money and takes
first mortgages on farms in exchange
it issues bonds against these mort
cages and sells the bond to produce
more money to lend.
The bonds issued by one bank are as
sured 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
borrow from the banks, cannot exceed
by more than per cent. the rate of in
terest paid on the bonds. This margin
is provided to pay the cost of operating
the banks. So. if the bonds sell at
per cent. and the cost of operating is l
per cent. the interest rate to the
farmer borrowers will be per cent. If
the cost is held down to one-half of one
per cent. the interest rate to the farmer
would be d 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 an
amount equal to twentieth 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.