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Show CO OPERATIVE BANKING AS ESTABLISHED IMER THE FEDERAL I ARM LOAN ALT ( Prank B. Wilson. Federal Farm Loan Bureau.) 1 The Federal Farm Loan Act( adopl-j adopl-j ed in June. HMO. and signed by Presi dent Woodrow Wilson shortly after, 'creates a comprehensive, co-operative banking system t' lend money to farnv i ers and prospeetive farmers for pur-i pur-i poseg of land purchase, farm develop ment, and the refunding of indebed- Iless The system consists of two main j divisions; a money-assembling agency, through which ihr accumulations and (savings of the country are gathered In. and a money-lending agency, through which the accumulations and savings of the country are gathered ' in, and a money-lending agency, 'through which this money is distribute ed for agricultural uses. The Farm Loan Act In brief, pools the farm mortgagee of the nation; issues a collateral trust security 'against these pooled mortgages, and sells these securities in the open mar- ket. The establishment of this cooperative coopera-tive banking system was made neces-! neces-! sary by reason of the fact that banks in most parts of the United States have not possessed tht facilities to properly take care of farm loans be-cause be-cause these loans required too long a time to run, because Interest rates to farmers have been too high, rang ing from 5 pr cent per annum to 5 per cent per month; Hnd because private pri-vate money-lending agencies had not realized the reflex advantages to themselves of a long time, authorized loan to the farmers. The machinery provided in the ap plication of the Farm Loan Act has throe main divisions: First The Federal Farm Loan Board in Washington, D. C. composed of the secretary of the treasury, William Wil-liam (1. McAdoo, chairman ex officio, George W. Norris. Farm Loan Commissioner, Com-missioner, Herbert Quick, raptain W. S. Smith, and Charles E. Dobdell Second The twelve Federal land banks throughout the I'nited States. Third The national farm loan associations, asso-ciations, eaeh 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 firsf important duty was to divide the coun try into twelve bank districts and locate one Federal land bank in each This board also provides the banks with temporary governing boards dur ing the process of growth Later a system of co-operative self-govern- men t will be inaugurated under which the associations of farmers will direct these big financial institutions, under the supervision of the Federal Farm Loan Board. Each of the twelve Federal land banks starts business with a paid-up I capital of $750,000, subscribed by the government, if private investors do not subscribe it within thirty days after the books are opened. These bank? have the right to land to nation-nl nation-nl farm loan associations up to twenty I times the capital stock of the banks. The lending capacity of these banks is automatically increased by requiring requir-ing the farm loan associations to rein vest in the capital stock of the hank-onet hank-onet wentieth of the amount their members borrow. Thus the capital stock of two bank? increases in the same ratio as their loans The banks acquire additional morn v for lending' by selling their own bonds to tares i tors. When a bank lends money and ' takes first mortgages on farms in ex change, it issues bonds against these moriaces and sell the bond to pro-) ! duce more money to lend. The bonds issued by one bank are j secured b the assets of all the banks operating under this system, and the rate of interest on the bonds is ad- Justed b supply and demand. The irate of interest charged to members! of farm loan associations for money which thnv hnrrnw frr.ni thr hnnl-a I ! cannot exceed by more than 1 percent j the rate of interest paid on the bonds. I This margin is provided to pay the cost of operating the banks. So, if jthe bonds sell at 4 percent and the cort of operating is 1 percent, the Interest rate to the farme-borrowers will be 5 percent. If the cost is held down to one-half of 1 percent (he interest in-terest rate to the farmers would be ' 4 1-2 per cent. So, briefly, the members of the asso nations of farmers borrow Troni the ' banks; the banks issue bonds against the farm mortgages and borrowed money from investors: the farmers invest an amount equal to one-twentieth of the amount thev borrow, in order to provide an increasing capital for the bnnks, and the whole process if done under governmental supervision super-vision md without profit to an in-dl in-dl idual. EDITOR NOTE: Tomorrow's in. si ailment will tell how the farmers may organize national farm loan associations asso-ciations to borrow from the Federal land banks. EDITOR THE STANDARD |
