Pullman herald. [volume] (Pullman, W.T. [Wash.]) 1888-1989, 1920-06-11
HOW THE FARM LOAN ACT
HELPS THE FARMERS
Continued from first page)


bic for the final use of these funds
under threat of revocation of char
ter. Borrowers of Joint Stock Land
Banks may purchase stock but un-
der the law cannot be compelled to
do so and so seldom does farmer
avail himself of this privilege that
Joint Stock Land Banks very often
do not inquire as to whether he
wishes to purchase his proportion
ate part of the stock, but it is inter-
esting to note that, did he purchase
stock in a Joint Stock Land Bank, he
would have the same voting rights
and the same interest in the earn
ings of the bank and in the dividends
as he would il he was stakeholder
in a National bank, and, when he
paid his loan, ne could still retain
his stock or sell it, we shall assume,
at least for book value. None or
this is true as to stockholders in a
Federal Land Bank.
Joint Stock Land Banks deal d.
rectly with the farmer or through a
local bank, in which case we are re-
Quired to pay the bank a commits
sion for handling the business. They
are not permitted to charge the bor-
rover a commission. They are not
permitted to make loan until after
the government has inspected the
land and approved the title and the
purposes for which the funds are to
be used. They are not permitted to
issue bonds to an extent greater than
15 times their capital stock. They
are not permitted to make a gross
profit in excess of one per cent be-
tween the loan and the bonds issued.
Thus, their gross income from bust
ness can only be Is per cent and
that can only be attained when a
bank reached its maximum loaning
capacity-in other words, is prac-
tically out of business. Should it
continue to increase it's capital stock,
then its ratio Qt capital to bonds
would never be Is per cent but-say
an average of IL to l, in which case
the earnings would only be IL per
cent The present ratio of all Joint
Stock Land Banks is to l.
Ctool~ nonIc GRO
Quired to pay taxes on their capital
stock and on their earnings just the
same as is a national bank. In a
hank operating at its maximum and
showing earnings, this would amount
to three and one-nalf per cent on
the capital The usual commission
paid for new loans IS che per cent
and, if the average life of their
loans is 10 years, this would be equal
to one-tenth of one per cent annual,
ly on loans, or one and one-half per
cent annually on capital. Support of
the Farm Loan Board, of the Re-
viewing Appraisers and of the Reg
istrars will amount to at least one
and one-half per cent more, total
expense of six and one-half per cent
on capital stock before you begin to
GRAFTON. If bank was operating on
IL to l ratio-and the ratio OF
all the banks at the present time is
s to this would leave gross profit
from the business of only five and
one-half per cent for a bank in ac-
tive operation or eight and one-half
per cent for a bank that had loaned
to it's maximum and retired from
active business.
Now, there must be competent
men in charge of these banks-men
who not only have the executive abil-
ity to organize and operate such a
bank but who have had experience
in banking and farm loan business
They must have stenographers and
bookkeepers, offices and furniture
telegraph and telephone expenses and
also the expense of collecting the
semi-annual installments on the
loans and, by the way, you know q
farmer always sends his personal
check so there are exchange charges
on all these collections, and if thi,
expense equals one-half of one PEI
cent of your total spread of loans
that would be seven and one-half pc.
cent on your capital, which, added
to the fixed expenses, would amour
to Il per cent per annum. II tn
bank can be operated for one-fourtl
OF one per cent or $4,000 for
S4,000,000 bank, that would b
three and three-fourth per cent O
say four per cent This, added t
the fixed expenses, would be 10 /
per cent leaving one and one-hal
ppr cent If tho hap1- MO- - =