| Show FARM LOAN ACT 1 I the operative cooperative co banking system established under it assy ys sy by frank R wilson federal loa loan bureau washington D C the federal farm loan act adopted in june 1916 and signed by president woodrow wilson shortly after creates a comprehensive operative cooperative co banking system to lend money to farmers and prospective fir farmers mers for purposes 0 of land purchase farm development and the refunding of indebtedness tb the system consists of two main divisions a money assembling agency through which the accumulation and savings of the country are arc gathered in and a money lending agency through which this money Is distributed tor for agricultural uses use S 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 curi curl ties in the open market the establishment of this co opera tive banking system waa was made necessary by reason of the tact fact that banks in most parts of the united states stated have not possessed the facilities to properly take care of farm loans because these loans required too long iong a time to run because interest rates to farmers have been too high ranging from 5 per cent per annum tr to 5 per cent per mon month th and because private money lending agencies had mot realized the reflex advantages to td themselves of a long time amortized loan to the farmers far machinery for its lt application the machinery provided in the application of the farm loan act ihas has three main divisions first the federal farm loan board la in washington D 0 composed of odthe the secretary of the treasury william G mcadoo chairman ex officio clo 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 ciati ons each composed of ten or more farmer borrowers which associations secure loans tor 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 bank in each this board also provides tho tanks lanks with temporary governing boards during the process of growth later a system of operative cooperative co 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 board each of the 12 federal land banks starts business with a paid up capital of subscribed by the government it 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 soc lations up to 20 times the capital stock of the banks the lending capacity of these banks is automatically increased by requiring the fain fai fa in loan associations to reinvest in the capital stock of the banks one twentieth of 0 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 0 ey for lending by selli selling fig their own bonds to investors without profit to individuals when a bank lends money and takes first mortgages on farms in exchange it issues boudi bonds against these mortgages and sells the bonds to produce more money to lend the bonds issued by one bank are secured by the assets of all the banks operating unde system and the rate of interest on the bonds is adjusted by supply and demand the rate of interest charged to members of farm loan associations for money which they borrow from the banks cannot exceed by more than I 1 per cent the rate of interest paid on the bonds this margin is provided to pay the cost of operating the me banks so if the bonds sell at 4 per cent and the cost of operating Is I 1 per cent the interest rate ta the farmer borrowers will be 5 per cent if the cost Is held down to one halt half of one per cent the interest rate to the farmers would be 4 per cent so briefly the members of the associations of farmers borrow from the banks the banks issue bonds against the farm mortgages and borrow money from investors the farmers invest an amount equal to one twentieth of the mount amount they borrow in order to provide an increasing capital for the banks and the whole process Is done under onder governmental supervision and without profit to any individual |
