The Meridian times. (Meridian, Idaho) 1909-1938, 1917-02-23
FARM LOAN ACT.
|. The Cooperative Banking
System Established Under IT.

Woodrow Wilson shortly after, creates
a comprehensive, cooperative banking
system to lend money to farmers and
prospective farmers for purposes of
land purchase, farm development, and
the refunding of indebtedness.
The system consists of two main d.
visions; a money-assembling agency,
through which the accumulation 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 Sc
curities 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-
u these loans required too long a
time to run; because interest rates to
farmers have been too high, ranging
from 5 per cent per annum to 5 per
cent per month; and because private
money-lending agencies had not real
lied the reflex advantages to them
selves of a long time, amortized loan
to the farmers.
Machinery for Its Application.
Thn pnonbfnaru proxJaad In fba m.
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 oficio; 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-
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 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-government will bt
inaugurated under which the associa
lions of farmers will direct these bis
financial institutions. under the super
vision of the federal farm loan board
Each of the IL federal land bank:
starts business with a paid-up capita
of $750,O00, subscribed by the govern
ment, If private investors do not sub
scribe it within 80 days after the book
are opened. These banks have til,
right to lend to national farm loan as
sociations up to 20 times the capita
stock of the banks. The lending ca
pacity of these banks is ~automaticall.
increased by requiring the farm LOAF
associations to reinvest In the capita
stock of the banks one-twentieth o
the amount their members borrow
Thus the capital stock of the banks in
creases in the same ratio as thei
loans. The banks acquire additions
money for lending by selling their owl
bonds to investors.
Without Profit to individuals.
When a bank lends money and take
first mortgages on farms in exchange
it issues bonds against these mortgage
and sells the bonds to produce NOR
money to lend.
The bonds issued by one bank ar
secured by the assets of all the bank
operating under this system, and tn
rate of interest on the bonds is adjust
ed by supply and demand. The rat
of interest charged to members of farr
loan associations for money which the
borrow from the banks, cannot excee
by more than 1 per cent the rate G
interest paid on the bonds. This maj
gin is provided to pay the cost Q
operating the banks. So, If the bond
sell at 4 per cent and the cost G
operating is / per cent, the intereS
rate to the farmer-borrowers will b
5 per cent. If the cost is held dow
to one-half of one per cent, the intel
est rate to the farmers would be Al
per cent.
So, briefly, the members of the a
s~ociations of farmers borrow from th
banks; the banks issue bonds again:
the farm mortgages and borrow none
from investors; the farmers invest a
amount equal to one-twentieth of tn
amount they borrow, in order to pr,
vide an increasing capital for til
banks, and the whole process is dor
under governmental supervision an
without profit to any individual.
No Hindrance.