until the reserve account should equal 20 per cent of the outstanding capital stock of the bank, and while the reserve account is maintained at or above that figure only 5 per cent of the net earnings need be carried to the reserve account. If both mortgagor and indorser should fail in either interest or principal payments, the amount defaulted is to be carried to a suspense account and, if uncollected at the end of two years, to be debited to this reserve account.

There were some specific restrictions placed on the powers of the federal land banks by the law, in addition to those imposed by means of the supervisory and regulatory powers of the Federal Farm Loan Bureau. Thus the federal land banks were denied power to accept demand deposits from anyone except shareholders, to transact any banking or other business except as expressly authorized by law, to loan on first mortgages except through the national farm loan associations or financial agents provided for by the law, to accept any mortgages on real estate except first mortgages of the kind prescribed by the law and those taken as additional security for existing loans, to issue or obligate itself for outstanding farm loan bonds in excess of twenty times the amount of its capital and surplus, or to demand or receive in any way commissions or charges not authorized by the law.

National Farm Loan Associations. The national farm loan associations were intended to be the active part upon which the ultimate success of the system would depend and which would be the instrument for teaching the farmers the benefits of coöperation. A national farm loan association is a corporation chartered by the Federal Farm Loan Board. One can be formed by ten or more persons who wish to borrow money from a federal land bank and who are the owners or prospective owners of farm land qualified as security for a mortgage loan under the restrictions imposed by the law. To form an association the members have to enter into articles of association, specifying the general object of the association, the territory within which it will operate, and such other provisions, not inconsistent with the law, as they may wish to adopt for the regulation of its affairs. A board of at least five directors must be elected by the association in the manner prescribed for the election of directors of national

banking associations and for the same term of office. The board of directors elect a president, a vice-president, a loan committee of three members, and a secretary-treasurer. All these officers except the secretary-treasurer must serve without compensation unless the Federal Farm Loan Board should give permission for the payment of salaries to them. With the same exception all the officers have to be bona fide residents of the territory within which the association is authorized to operate and must be shareholders of the association.

The law clearly indicates that the secretary-treasurer was intended to be the active manager of each national farm loan association, not only by allowing him a salary but also by enumerating his duties. It declares that he should act as custodian of all the funds, securities, and records of the association and that he should collect and transmit to the federal land bank all payments of interest and principal arising out of loans made through the association. He was to carry out all duly authorized orders of the Federal Farm Loan Board, to make quarterly reports to it, and to furnish it with any information required about the condition of his association. He was to make certain that the loans made through the association were applied to the purposes stated in the application of the borrower and to report to the federal land bank any failure to comply with the terms of a loan or the amount of any delinquent taxes on land mortgaged to the land bank. Because of his financial responsibilities the secretary-treasurer must furnish a surety bond.

The salary of the secretary-treasurer and the reasonable expenses of other officers and the loan committee as well as all other expenses were to be paid from the general funds of the association. If no funds should be available the board of directors was authorized to levy an assessment on the members of the association in proportion to the amount of stock held by each, or it might secure an advance from the federal land bank of the district to be repaid with interest from dividends coming to the association because of its holdings of bank stock.

The articles of association entered into by the persons seeking to form a national farm loan association, according to the law, must be forwarded to the federal land bank in whose district the association proposes to operate. Accompanying them there must

be affidavits stating that each of the applicants is the owner or about to become the owner of farm land qualified to be the basis of a mortgage under the act, that the loan desired by each person is not more than $10,000 or less than $100, and that the aggregate loans are not less than $20,000. A subscription to stock in the federal land bank amounting to 5 per cent of the desired mortgage loans must also be sent at the same time. Upon receipt of the articles of association and the other papers, the federal land bank was to send an appraiser to investigate the solvency and character of the applicants and the value of their lands. After receiving his report the federal land bank was to forward the articles of association and the other papers to the Federal Farm Loan Board, with its recommendation as to whether a charter should be granted to the applicants. If the recommendation of the bank should be favorable the Federal Farm Loan Board must grant a charter to the association except that it could refuse for good cause. When a charter is received the national farm loan association may begin business and negotiate loans for its members from the federal land bank.

The law provided that when a national farm loan association sought a loan for one of its members from the federal land bank, it was to subscribe for capital stock of the bank to an amount equal to 5 per cent of the loan and pay in cash for the stock when the loan was granted. This stock was to be held by the bank as collateral security for the payment of the loan, but any dividends payable on it were to go to the national farm loan association. The stock had to be paid off and retired upon the full payment of the mortgage loan, in which case the national farm loan association was to retire the corresponding shares of its stock that were issued when the loan in question was consummated.

The shares of the national farm loan association were fixed by the law at a par value of five dollars each. Shareholders were to be entitled to one vote in deciding questions at meetings of the association for every share of stock owned up to a maximum of twenty votes. No one but borrowers under the system could be a member or shareholder of a national farm loan association. An applicant might become a member by a two-thirds vote of the directors of the association and by subscribing to one share of the stock of the association for every one hundred dollars of the

amount of his proposed loan. If the loan should be granted the subscription to the stock of the association must be paid in cash. The amount of money necessary to pay for the stock of the national farm loan association could be included in the face of the loan. The stock itself, which is owned by the borrower, must be held by the national farm loan association as collateral security for the payment of the loan, but any dividends paid on it were to go to the owner. Ten per cent of the net earnings of the association had to be sequestered in a reserve account until the reserve amounted to 20 per cent of the outstanding stock after which only 2 per cent had to be added to the reserve account. The balance of the net earnings, at the discretion of the association, could be distributed as dividends to the stockholders.

Shareholders of a national farm loan association were made individually responsible by the law for all contracts, debts, and engagements of the association to the extent of the par value of the stock owned by them in addition to the amount paid in and represented by their shares.

The powers of a national farm loan association were declared to be:

(1) The power to indorse and thereby become liable for the payment of mortgages taken from its members by the federal land bank.

(2) The power to receive from the federal land bank the funds advanced by the bank and to deliver them to members upon receipt of qualified first mortgages.

(3) The power to acquire and dispose of such real and personal property as may be necessary or convenient for the transaction of its business.

(4) The power to issue certificates against deposits of current funds bearing interest for not longer than one year at not over 4 per cent and convertible into farm loan bonds when presented at the federal land bank of the district in multiples of twentyfive dollars.

(5) The power to pay the reasonable expenses of the association including the salary of the secretary-treasurer and, if no funds were available, to assess members in proportion to the amount of stock owned by each or to secure an advance from the federal land bank.

March, 1915." The most important of these may be classified in three groups; the first proposing direct loans to farmers by the national government with funds obtained by the sale of government bonds; the second consisting of various schemes for the organization of land banks by lenders, who would secure funds by selling the bonds of the banks, as contemplated by the Moss-Fletcher bill; the third group of bills, of which the HollisBulkley bill is an example, sought to establish systems under which land banks would be organized by coöperative associations of borrowers.

There was relatively little support for direct government loans, but a spirited debate developed between the advocates of the other two ideas. No action was taken during the Sixty-third Congress, and the whole subject was referred to a joint committee on rural credits, which appointed a sub-committee on land mortgage loans. This sub-committee conducted an extensive investigation and drafted a bill which on July 17, 1916, became the law known as the Federal Farm Loan Act. It was a compromise between the Moss-Fletcher and the Hollis-Bulkley bills, for it provided, as will be seen below, for both farm land banks and coöperative farm loan associations organized by borrowers and also joint stock land banks to be owned and organized by lenders.

The Federal Farm Loan Act. The agricultural credit system, created by the Federal Farm Loan Act, was modeled upon the federal reserve system in its general outline as well as in many details." Corresponding to the Federal Reserve Board at the head of the federal reserve system was the Federal Farm Loan Board with much greater control over the new system. The federal land banks occupy a position analogous to that of the federal reserve banks. The national farm loan associations of the agricultural credit system are to it what the individual

"These were printed in one volume by the Government Printing Office under the title of "Bills Introduced in the United States Senate and the House of Representatives during the Sixty-third Congress Relative to Rural Credits."

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13 H. Parker Willis, who played such a large part in framing the Federal Reserve Act and who drew up the first draft of the Hollis-Bulkley bill, says this was done deliberately.-The federal reserve system, p. 1464.