PART V.

THE FEDERAL FARM LOAN ACT1

(Rural Credits Law)

March 4, 1913, the President was authorized to appoint a commission to investigate the foreign rural credit systems.2 That commission made an elaborate report the same year to Congress. An investigation shows that in 1770 the Landschaften were created by Frederick the Great and compulsory associations of all land owners in every province were formed and the assets of all proprietors were involved in a guarantee of the bonds of the association of each province.

In 1852 the French Land Credit Bank was founded. The capital is fixed at twenty-five million francs, and the French Government granted a bank subsidy of ten million francs. In 1896 the Bavarian Agricultural Bank was incorporated. It is endowed with State funds-one million marks, free of interest, and a further loan of four million marks at three per cent. interest. In 1908 the Government of Holland created the Mortgage Bank of Eindhoven, with a capital of one million francs. In 1909 the Peasant Bank of West Prussia and the Middle Class Bank of West Prussia were founded. The Government placed at their service 225 million marks for the purpose of aiding farmers to meet their obligations.

Direct Government loans to farmers have been made by Great Britain, Russia, Denmark, Sweden, New Zealand and the Australian Provinces. Bonds have been issued by land mortgage institutions guaranteed by Governments or

1Sen. Doc. No. 214, 63d Congress, first session.

Act 12, Ch. 627, Laws of 1910, State of New York, amending its land title law enacted in 1908, authorizing the Torrens system of registering farm titles and farm mortgages.

Real estate restriction as to land bank. Paine's New York Banking Laws (7th Ed.), pp. 438, 439.

2Consult pp. 172-174 ante.

provinces in Austria, Switzerland, Norway, Egypt, Australia, Mexico, Argentina and Uruguay. Contributions have been made to the capital of land mortgage institutions by France, Italy, Hungary, Roumania and Sweden. Subscriptions have been made to the stock by the Governments of Hungary, Roumania, Switzerland, Denmark, Norway, Philippine Islands and Chile, and Government funds are loaned to these institutions in France, Italy, Servia, Chile and Japan. In Hungary, the Hungarian Land Mortgage Institute has been aided by the contribution of $200,000 from the public treasury. In Switzerland, the Canton banks are Government institutions. Their capital has been furnished by the Canton Governments, either from the treasury direct or secured by an issue of bonds. In Norway the original capital of the Mortgage Bank of the Kingdom was furnished by the State. The capital furnished by the State bears four per cent. interest. It may be added that the Agricultural Credit Associations in the Grand Duchy of Baden have large Government support. The Land Bank of Wiesbaden has bonds guaranteed by the Government.

The four gravest questions before the American people are preparedness, banking and currency, the tariff, and the food production of our country. We produce approximately only one-half as much per acre as does Germany, Holland or France, or the other European countries where they have intensified farming. Our production is not keeping pace with our increase of population. There are 6,200,000 farms, valued at forty billion dollars. Their annual gross products amount to ten billion dollars. There is a mortgage indebtedness of two billion dollars maturing in from three to five years. The average rate of interest is eight and one-half per cent.

The Comptroller of the Currency recently stated that out of a total of 7,615 banks, 1,022 admitted that they were receiving an average of ten per cent. or more, some an average

of eighteen per cent. on all of their loans; these banks were for the most part in the South and in the West. Twentythree of such banks were in Georgia, 317 in Texas, 90 in North Dakota, 25 in South Dakota, 18 in Nebraska, 37 in Colorado, 25 in New Mexico, 300 in Oklahoma, and 33 in Idaho.

In one State in the Southwest 131 banks reported that they had charged a maximum rate of interest ranging from 15 per cent. to 24 per cent. per annum. Sixty-seven banks' maximum rate ranged between 25 per cent. and 60 per cent.; 22 between 60 and 100 per cent.; 18 from 100 to 200 per cent., and eight banks which owned up to having charged maximum rates ranging between 200 and 2,000 per cent. Most of these disgraceful rates were for comparatively small sums. There was a total of 1,206 banks charging 12 per cent. or more. Sixty-six of them were in Georgia, 52 in Alabama, 168 in Texas, 17 in Kentucky, 28 in Tennessee, 40 in Illinois, 69 in North Dakota, 48 in South Dakota, 46 in Montana, 63 in Colorado, 33 in New Mexico, 287 in Oklahoma, 25 in Washington, 40 in California, 45 in Idaho.

The Federal Farm Loan Act provides three forms of organization: Federal land banks (one in each of twelve districts), National farm loan associations and joint stock land banks. The federal land banks are to have a minimum capital of $750,000 each, which may be owned by individuals, firms, corporations and the United States and State Governments, provided it is subscribed within thirty days after books of subscription are opened. These institutions have power to loan on first mortgages on farms in their districts and to issue and sell farm loan bonds. National farm loan associations may be formed by ten farmers desiring loans aggregating $20,000 or more. The joint stock land banks may be formed by ten or more persons to do business in the State where the principal office is located and in one contiguous State. The bonds issued by the federal land banks and joint stock land banks are secured by first mortgages on farm lands and United States bonds.

The federal land banks cannot loan directly to farmers, but only through the agency of National farm loan associations which may be organized without limit in a land bank district by any ten owners or prospective owners of farm land who desire to secure loans on farm property. Applications for charters for these associations must go to the Farm Loan Board and may be refused by it. No association will be chartered unless it is shown that signing members desire loans totaling at least $20,000. In applying for membership in an association a farmer must take five per cent. of the face value of the desired loan in stock of the association. A loan committee of the farm loan association may approve or reject applications for loans. Loans will be made on first mortgages on farm property by the federal land bank and the productive value of the land will be the main consideration. The land will be subject to inspection by an appraiser of the Farm Loan Board. Loans will be made only for purchase of land, for its improvement, or for purchase of live stock, equipment, fertilizers, or to provide buildings on a farm or to liquidate indebtedness, existing when the first association is formed in the county where land is located. No loan will be made of more than $10,000 nor less than $100. Interest will not be charged greater than six per cent. Loans will be reduced through amortization plans providing for reduction by annual or semi-annual payments on the principal. Mortgages are not to run for more than forty years nor less than five. Provisions are enacted for satisfaction of overdue interest or amortization payment. The federal land banks will advance the money to be loaned. It will pass to the hands of the National farm loan associations and to the farmer.

The statute enacts that when a federal land bank has loaned $50,000 to farmers it may issue a corresponding amount of farm loan bonds, and that the total that may be issued by any one bank on a minimum capital of $750,000 is not to exceed twenty times that capital. This would give each bank $15,000,000 and the whole system $180,000,000 to