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Text: Early in this century, Congress recognized that farmers had a tremendous need for long-term capital at low interest rates. This led to the enactment of the Federal Farm Loan Act of 1916, 39 Stat. 360, as amended, 12 U.S. C. § 641 et seq. The immediate purpose of the bill was "to afford those who [were] engaged in farming or who desire[d] to engage in that occupation a vastly greater volume of land credit on more favorable terms and at materially lower and more nearly uniform interest rates than [were] present[ly] available." H. R. Rep. No. 630, 64th Cong., 1st Sess., 2. The longrange purpose was to stimulate and foster a cooperative spirit among farmers who, it was hoped, would work together to seek agricultural improvements which they would finance themselves. Id., at 2-3; S. Rep. No. 144, 64th Cong., 1st Sess., 5.

The 1916 Act divided the United States into 12 regional districts under the general supervision of a Federal Farm Loan Board. Each district contained a federal land bank designed to loan money to farmers at low interest rates. Persons desiring to borrow were required to organize into groups of 10 or more which were called "national farm loan associations." Sec. 7, 39 Stat. 365.

In order to borrow from the district bank, an association had to establish that each of its members was an owner or a prospective owner of a farm, that the loan desired by each member was not less than $100 nor more than $10,000, and that the aggregate of the loans was not less than $20,000. Each association also had to subscribe for capital stock of the bank in the amount of 5% of the total loan sought by its members. The association, in turn, was required to compel each of its members to purchase stock in the association equal to 5% of the amount of the loan sought by that member. Hence, there were two separate levels of cooperative association.[5]

The legislative history and the language of the Act itself indicate that Congress faced somewhat of a dilemma in structuring the land bank system. On the one hand, there was a strong congressional desire to stimulate a privately controlled, privately owned, and privately financed program based upon the cooperative efforts of dedicated farmers. This desire was effectuated in large measure in the stock-purchase requirements discussed above. On the other hand, Congress realized that without federal help, the existing plight of the farmers would probably render them unable to support the system themselves, and it would thus be doomed to failure:

"The greatest difficulty in the establishment of a rural-credit system, based upon the cooperative principle, is met in connection with the inauguration of the system. Ample capital is absolutely necessary at the start and whatever sums the first borrowers might be able to contribute would in no wise suffice to get the system into successful operation. The system must be endowed, temporarily at least, with capital from sources other than the subscriptions to capital stock among the borrowers." H. R. Rep. No. 630, 64th Cong., 1st Sess., 9.
Accord, S. Rep. No. 144, 64th Cong., 1st Sess., 4.

To resolve the dilemma, Congress provided for temporary public financing without charge to supplement the stock-purchase requirements of the statute. Congress also provided that each land bank must periodically increase its capital shares in order to achieve the goal of private ownership of the system, and to repay the temporary federal financing.

The land bank system remained virtually untouched[6] until the economic depression of the 1930's when Congress determined that more action was needed to aid farmers in establishing privately owned institutions designed to provide ready sources of long-term credit. The Farm Credit Act of 1933 was passed to supplement the 1916 legislation. It established, inter alia, regional Banks for Cooperatives in each of the 12 land bank districts and a Central Bank for Cooperatives in Washington, D. C.[7]

These Banks were authorized to make loans to "cooperative associations," defined as "association[s] in which farmers act together in processing, preparing for market, handling, and/or marketing the farm products of persons so engaged, and also . . . association[s] in which farmers act together in purchasing, testing, grading, processing, distributing, and/or furnishing farm supplies and/or farm business services." Agricultural Marketing Act § 15, 46 Stat. 18, as amended, 12 U.S. C. § 1141j.

The new Banks paralleled in many ways those already established under the 1916 legislation. The same regional districts were used, many of the same persons were eligible for loans from both institutions, and borrowers from both banks were required to be stockholders. The 1933 Act required cooperative associations to own, at the time a loan was made, an amount of stock in the Bank for Cooperatives equal in fair book value (not to exceed par value) to $100 per $2,000 of the amount of the loan, or 5%, the same amount of stock required of borrowers from land banks under the 1916 Act.

One notable difference between the 1916 and the 1933 Acts was that the latter did not regulate the membership of the cooperative association to any great degree. For example, members of cooperative associations did not have to own stock in the associations, only in the Banks; they did not have to borrow a minimum amount; and they did not have to be farm owners or prospective farm owners, but could be processors, handlers, testers, or marketers. This is in sharp contrast to the stringent requirements of the 1916 legislation. Another notable difference is that Congress invested substantially more money in the 1933 program ($110,000,000) than it had invested in the land banks ($9,000,000). See S. Rep. No. 1201, 84th Cong., 1st Sess., 5, 7.

As time passed, Congress watched the land bank system develop as planned. The temporary Government capitalization that had solidified the program in its inception was gradually replaced by private capital, and by the end of 1947, the Government's capital had been completely returned. S. Doc. No. 7, 84th Cong., 1st Sess., 4; S. Rep. No. 1201, 84th Cong., 1st Sess., 7. The land banks became totally private concerns _x0097_owned, operated, and financed by farmers without Government assistance.

Congress also watched the development of the Banks for Cooperatives and became concerned about their lack of success in attracting and keeping private investment. By the 1950's, the Government still retained over 88% of the stock in the Banks. In § 2 of the Farm Credit Act of 1953, 67 Stat. 390, 12 U.S. C. § 636a, Congress stated that "[i]t is declared to be the policy of the Congress to encourage and facilitate increased borrower participation in the management, control, and ultimate ownership of the permanent system of agricultural credit made available through institutions operating under the supervision of the Farm Credit Administration . . . ." A Federal Farm Credit Board was created for the purpose, inter alia, of making recommendations concerning the best way to convert the Banks for Cooperatives from predominantly Government-owned to predominantly privately owned institutions.

The result of the Board's report and recommendations was the Farm Credit Act of 1955, 69 Stat. 655. It sought to effectuate Congress' policy by providing for the orderly withdrawal of Government capital from the Banks and the continual influx and retention of substitute private financing. See S. Doc. No. 7, 84th Cong., 1st Sess., 6; S. Rep. No. 1201, 84th Cong., 1st Sess., 1; Hearings on Farm Credit Act of 1955 before the House Committee on Agriculture, 84th Cong., 1st Sess., 30-31.