The Pickens sentinel. (Pickens, S.C.) 1911-2016, 1917-02-22
FARM LOAN ACT.
!. Tho Cooperative Banking
System Established Under It.

'~<>~<~s<s<e<SeN~S~~ S~~es&~~s~e~Ss<~<<l
'sy FRANK X; Wilson, federal loan bu-
reau, Washington. d. CO.
The federal farm loan act, adopted
in June, 1915. and signed by President
Woodrow Wilson shortly after, creates
q comprehensive, cooperative banking
system to lend money to farmers and
prospective farmers for purposes Of
lana purchase, farm development, and
the refunding of Indebtedness
The system consists of two main d.
visions; mOney-aSscmbling agency,
through which the accumulation and
savings OF the country are gathered In,
and a money-lcnding agency, through
which this money is distributed for
! agricultural uses.
The farm loan act, in brief, fools the
farm mortgages of the nation; issues
collateral trust security against these
pooled mortgages, and sells these Sc
curlties in the open market.
The establishment of this co.opera.
| tive banking system was made ncccs-
sary by reason of the fact that bnnks
! IA. fhost parts Of the United States
| have not possessed the facilities to
properly take care OF farm lonns be-
cause these lonns 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 mOntn; 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.
The machinery provided in the ap-
plicatlon of the farm loan act has
three main divisions:
| First-The federal farm loan bonrd
in Washington, d. c., composed of the
secretary Of the treasury, William G.
McAdoo, chairman ex oflcio; George
| w. Norris, farm loan commissioner !;
Herbert Quick. Capt. W. S. A. Smith
and Charles Il. Lobdell
Second-The 12 federal loan banks
throughout the United States.
Third-The national farm loan asso-
Citations. each composed of ten or more
| armer-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 n system
of cooperative sclf-government will bs
innugurnted under which the associn
tons Of farmers will direct these bi,
financial institutions, under the super
vision Of the federal farm loan board
Each of the IL federal land bank
starts business with pnid-up cnpitu
OF $I5O,O0O, subscribed by the govern
ment, If privnte investors do not sui
scribe 1T 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 tlle banks. The lending ca
pacity of these banks Is nutomaticnll,
increased by requiring the fnrm loni
associations to reinvest In the cnpitu
stock Of the banks one twentieth o1
the amount their members borrow
Ihus the capital stock of the banks in
creases In the same ratio rs theil
! 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 arc
secured by the assets Of ull the banks
operating under this system, and the
rate of interest on the bonds is adjust
ed by supply and demand The rate
or interest charged to members Of farm
loan associations for money which they
borrow from the banks, cannot exceed
by more than l 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 ut per cent and the cost of
operating Is l per cent, the interest
rate to the fnrmer-borrower will be
per cent. II the cost Is held down
to onc-half 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