Evening Republican, Volume 21, Number 44, Rensselaer, Jasper County, 22 February 1917 — FARM LOAN ACT. [ARTICLE]

FARM LOAN ACT.

I. The Co-Operative Banking ' System Established Under It.

(By Frank R. Wilson, federal loan bureau, Washington, D. C.) , i The federal farm loan act, adopted In June, 1916, and signed by President Woodrow Wilson shortly after, creates a comprehensive, co-operative 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 divisions; 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 ik 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 securities in the open market. The establishment of this co-opera-tive banking system was made necessary by reason of the fact that banks in most parts of the United States have net possessed tjhe facilities to properly take care of farm loans because 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 realized the reflex advantages to themselves of a long time, amortized loan to the farmers.

Machinery for Its Application. The machinery provided in the application 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, chairmanexnflieio;.George W. Norris, farm loan commissioner; Herbert Quick, Capt. W. S. A. Smith and Charles E. Lobdell. Second —The 12 federal loan banks throughout the United States. Third—The national farm loan associations, 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 country into 12 bank districts and locate one federal land hank tn each. This

board also provides the banks with temporary governing boards during the process of growth. Later a system of co-operative self-government will be inaugurated under which the associations of farmers will direct these big financial institutions, under the supervision of the federal farm loan hoard. Each of the 12 federal land banks starts business with a paid-up capital of $750,000, subscribed by the government, if private Investors do not subscribe it within 30 days after the books are opened. These banks have the right to lend to national farm loan associations up to 20 times the capital stock" of the banks. The lending capacity of these banks is automatically increased by requiring the farm loan associations to reinvest In the capital stock of the banks one-twentieth of the amount their members borrow. Thus the capital stock of the banks increases in the same ratio as their loans. The banks acquire additional money for lending by selling their own bonds to investors. Without Profit to Individuals.

When a bank lends money and takes first mortgages on farms in exchange, it Issues bonds against these mortgages. and seils- Jo produce more money to lend. "- .. T The bonds issued by one bank are secured by the assets of all the banks operating under this system, and the rate of interest on the bonds is adjusted by supply and demand. The rate o( interest charged to members of farm loan, associations for money which they borrow from the banks, cannot exceed by more than 1 per cent the rate of interest paid on the bonds. This margin is provided to pay the cost of operating the banks. So, if the bonds sell at 4 per cent and the cost of operating is 1 per cent, the interest rate to the farmer-borrowers will be 5 per cent. If the cost is held down to one-half of one per cent, the interest rate to the farmers vvould.be Wt pV cent. So, briefly, the members of the associations of farmers borrow from the the banks issue bonds against the farm mortgages and borrow money from investors; the farmers Invest an amount equal to one-twentieth of the amount they borrow, in order to p"O----vide an increasing capital for the banks, and the whole process is done under governmental supervision and without profit to any individual.