Pullman herald. [volume] (Pullman, W.T. [Wash.]) 1888-1989, 1918-01-04
FIGHTING FARM LOAN BANKS

The following statement OF the
Federal Farm Loan Board has been
issued by Secretary w. G. McAdoo,
chairman of the board:
From the time of the passage of
the Farm Loan Act majority of the
private agencies engaged in the farm
loan business have appreciated its
advantages, and are about to ask con-
gress for some minor amendments to
the act which will justify their be-
coming members of the system as
Joint stock land banks. very large
majority of the country bankers
throughout the states have also APP
preciated the advantages of the new
loan system to the rural communities
and are heartily in favor of it.
There has always been, however,
a small minority of farm loan men
and country bankers bitterly opposed
to it, and these interests have been
waiting for an opportunity to attack
it. knowing perfectly the conditions
under which the business is done
| they now think they have found their
coveted opportunity to attack the
| system. Their first step has been to
instigate a call for a report of the
| condition of the - Federal Land
Banks.
Ordinarily such institutions are
provided with surplus to absorb the
expenses of the first year, but under
the act of congress each one of these
| banks was started six or eight
months ago with $750,O00 capital
and no surplus. They were obliged
to pay out their organization ex-
penses, including, furniture, station
cry, etc. They were obliged to or
ganize their office force, and to en-
ploy and pay appraisers to appraise
the farms of the applicants for loans.
They were also obliged to create a
legal department, to examine the
titles of applicants. For at least six
months, they were paying out money
continuously, with scarcely dollar
of receipts. On November l they
the bonds they had sold. They are
now just beginning to receive the |
first payments on the loans they have |
made. Under these conditions, each |
bank necessarily shows what is tech
nically called IAN impairment of |
capital" The average Impair
ment," SO called, is six per cent, but |
this does not actually impair the
strength or the solvency of the banks, |
particularly as they have received |
from Farm Loan Associations sub
scriptions to additional stock in ex-
cess of $1,500,00O, so that their ac-
tual capital is about $1,O00,000
greater than it was when they start
ed. Everybody knew that this would
be so.
con the other side, it should be re-
membered that they have assets
which do not appear on their books,
made up principally of two items
The first of these is the large amount
of interest accrued but not yet due
upon the loans they have made. The
second is the charges for appraise-
able by borrowers when their loans
are closed. They have made appraise-
ments and examinations of title on
loans to the amount of over $780,
5000, of which only a little over
30,000,000 have been closed to
date. They are therefore entitled to
the $70,000,000 of business which
has been examined and approved, but
not yet closed. The business of
| these banks consists of borrowing
money at four and one-half per cent,
| which they are under no obligation
| to repay for 20 years, and loaning
one-half per cent on first mortgages
limited to so per cent of the value
of the land mortgaged. Such a bust
ness is inherently profitable, but not
until reasonable volume of it is on
the books. The necessary volume is
in sight, and in process of being
closed. AS a matter of fact, its vol
ume is so great that several of the
more active banks, if permitted to
continue their present rate of
Igrowth, will be able to begin the re-
payment of the government subscrip-
tons to their stock inside of Is
months.
The business of the banks is sim
liar to that of life insurance or fire
insurance company, which invests
money to get profitable business on
its books. The cost of getting this
business has to be paid before the