As to life insurance: amount and date of policy, with premium; under what form the insurance is written, giving also name of assured and beneficiary.

As to any and all other forms of insurance: fullest possible particulars as to amounts, dates, rates, premiums, what is insured by the policy, and of collection of all premiums collected for account of company, refunds made, proportion of premium credited to bank profits under agreement with the company, proportion due the company, amounts and dates of all remittances made to the company on account of premiums collected, and balance, if any, due from bank to company.

The bank should also keep records required by each insurance company in the manner and under the forms prescribed by the various companies; all available for inspection by the examiner on request.

3. The records of profits should be carried in a separate account and be readily traceable to the source.

4. The bank will be required to carry on its general ledger an account which will, at all times, show amount due to insurance companies for which it is acting, on account of premiums collected but not remitted, and this liability must be shown in reports of condition and in published statements of the bank under the heading "other liabilities-on account of insurance premiums collected and not remitted," unless specifically provided for in the report.

5. There should be available in the bank, for the national bank examiner's inspection:

(a) A statement showing the town's population.

(b) A proper certificate from the authorities of the state in which the bank is located showing as to each company for which the bank is acting that such company has received authority to transact business in that state.

(c) A proper certificate or other writing of each company for which the bank acts, authorizing the bank to act as its agent, setting forth that the bank does not guarantee payment of any premium on insurance policies issued through its agency by its principal, and stating that the bank is not to be held responsible for the truth of any statement made by an assured in filing his application for insurance.

(d) Copies of all reports made by the agent bank to each insurance company which it represents.

CHAPTER XIII

FINANCING CROP RAISING AND MARKETING

THE farmer's requirements for short-term, as distinct from longterm, credit are met by a variety of agencies. Ultimately there are two leading groups-the reserve banks and the special institutions created by the Agricultural Credits Act of 1923 or under state law. A third agency, similar to the newer institutions rather than to the reserve banks, is the War Finance Corporation, but it is merely temporary, and the newer institutions are designed to succeed it. A chapter will be devoted to each of these two general groups of agencies, consideration being given first to the general principles governing short-term agricultural credit and the facilities provided by the reserve banks.

The Farmer's Need for Short-Term Credit

In last analysis, the short-term credit needs of the farmer, as distinct from the long-term, do not differ greatly from those of any other producer. Difference is in degree, rather than in kind. Yet because of the attention recently paid to these needs, it will be well to summarize them as follows:

1. To furnish working capital to produce the crop and prepare it for

market.1

2. To hold and store the crop.

3. To market the crop.

In the past, the mechanism which has developed has concerned itself more particularly with the first, facilities for the last two purposes being provided to middlemen rather than to producers themselves. Present agitation, however, centers around facilities for these two purposes, provided direct to the farmer.

Agricultural production has several peculiar features:

1. It takes relatively long. The farmer does not have a quick turnover as do many merchants. Hence the maturity of his paper must be adjusted accordingly, yet often this is accomplished only in a haphazard way through renewal of nominally shorter-term paper.

1 The situation differs in the different sections. Thus in the prairie states use of fertilizer is negligible and borrowing begins only at harvest, while in the eastern and South Atlantic States heavy expenses are also incurred for fertilizer. Equipment, such as agricultural implements, may properly fall in the long-term category.

2. It is a one-season industry, with a peak load of sale, storage, finance, and transportation. The great bulk of the crops are planted in the spring and harvested and marketed in the autumn; some are perishable and require either processing or consumption almost as soon as harvested. A large amount of funds is therefore needed at the same time for financing agriculture, and at the time of the year when demands upon banks are relatively heaviest and when the farmer competes with credit risks which are often preferred by lenders. To remedy this situation in part, diversification of crops is often advocated.

3. Many farmers, from necessity or otherwise, rely on one crop, for example in the South. Entire reliance on one cash crop intensifies credit needs, since other products must be bought. Diversified farming reduces such needs, enables diversification of maturities and lessens the need for excessive credit. An example is found in the case of dairying, which produces a regular calculable income.

4. The industry itself is uncertain. Crop failure may occur from causes entirely beyond the individual farmer's control, and if it occurs is likely to affect the entire section. Or, if crops are too bountiful, abroad as well as at home, prices-fixed in a world market for some of the great staplesmay be correspondingly low, and even reduce his net return. Agricultural products are notoriously unstable in price, and often tend to move freely or not at all. Whether this situation can be remedied by improvement of the marketing mechanism is an open question. This uncertainty may well tend to lengthen the period for which funds are required, and make renewals hazardous, yet frequent.

5. The industry involves risk in another way also. It is unstandardized, commodities being perishable and varying in quality so as to make grading difficult, while the farmer by and large is unbusinesslike in his methods. Moreover, the large farming areas are the newer sections which do not possess a surplus of capital, but need to obtain capital from the older, more settled regions. Yet the farmers, needing capital, often intensify the difficulty of financing by not making demand deposits in the banks with the proceeds of their crops.

6. The use which the farmer makes of the funds differs from that of the merchant or manufacturer. He does not operate his farm as an entity distinct from his household. He needs to obtain part of his living expenses (which would be akin to the regular business man's labor costs) on crop time, so that retail trade in his case may run on crop time, instead of on short-pay terms as for the business man or wage earner.

Nor does the farmer have particular security to give for financing his productive operations in order to overcome these handicaps. A mortgage on farm buildings or equipment is used to acquire fixed assets, rather than for short-term operations, and the farmer is likely to have given one, while a second mortgage would be of little aid. Live stock alone affords a special case. A crop lien, again, is subject

• Although cotton is still the principal crop in the South it is not the only crop, as was formerly the case. The one-crop system is more pronounced now in some of the wheat-growing areas of the Northwest than in the South.

to all the vicissitudes of the crop. In other words, the farmer obtains little aid from such security as he may offer, and must depend upon his general credit standing. Everywhere the best farmers borrow on their straight note, leaving the poorer risks to buttress the credit as best they can with security of some sort. Furthermore, even though security is given, carry over is often better than foreclosure in case of crop failure, and the bank can merely wait.

Because of these features, it has been necessary to rely in part upon various agencies having a close personal contact with the farmer, and to compensate them directly or indirectly for their added trouble in supervising and taking the risks in supplying funds. These agencies in general have been as follows:

1. (a) Country merchants or local stores which advance supplies from time to time during the growing season, and often receive an exorbitant return in the higher time price they charge.

(b) Agricultural implement dealers, fertilizer dealers, etc., who sell either for cash or on crop time.

2. Marketing men.

(a) Cotton factors, manufactured leaf tobacco sales warehouses, cigar leaf tobacco dealers, etc., who are to sell the crop later and advance on it while growing.

(b) Elevators, warehouses, etc., who are to store products. They loan chiefly, however, on products in storage.

Added to these bodies are coöperative organizations, either credit unions or marketing associations, the latter of which parallel 2 (a).

Given these conditions, what are the aims of those who wish to reform short-term productive (not marketing) finance? As in the case of long-term credit, the thought is, more credit, at lower rates. In part, this is to be accomplished through education-avoidance of onecrop farming, keeping of books and following more businesslike methods. In part it is to give easier access to existing agencies. This is hindered by the fact that, after all, the aim should be, to give access not only to a man who possesses property and enable him to prosper, but none the less, to a man who is just starting, and whose integrity is his principal possession. But in the latter case, the agency cannot be expected to put up the entire funds. Advocates of liberality in farm finance often ignore the doctrine of margining in order to protect the lender, which is a universal rule of finance.

Looked at in another way, the problem is this: Who can best check the farmer's credit, and who can obtain most cheaply and effectively the funds he needs, assuming of course that the advantages of the agency in the way of cheaper costs are passed on to the farmer and not merely retained by the agency itself? Taking two typical

lines, the distributive chain and the sources of funds used would be as follows:

What is the most effective chain to reach adequate funds most cheaply? It is impossible to lay down any general rule; the most that can be done here is to raise the question.

General Provisions of the Federal Reserve Act and Board

The Federal Reserve Act attempts to help finance agricultural production in three principal ways:

1. By linking together certain of the banks of the country through membership in the System. As less than one-third the country's banks had been admitted, and small country banks were prominent among those excluded, the Agricultural Credits Act of 1923 changed section 9, relating to membership.

2. By providing for inter-district rediscounting between the various reserve banks.

3. By giving farmers' paper wider access to the reserve banks than either manufacturers' or merchants' paper. This related originally only to maturity, which was longer; the paper had otherwise to satisfy the same general conditions of rediscount, while the Board's regulations put the farmer on practically the same basis as other business men. The Agricultural Credits Act of 1923 specifically enlarged the definition of agricultural paper to include paper of coöperative marketing associations and admitted certain factors' paper as commercial paper.

It should be noted that the Reserve Act does not consider separately problems of agricultural finance, but merely treats them in conjunction with problems of industry and commerce. And yet agricultural organization and methods differ radically from those prevailing in industry and commerce. The Act was framed primarily with the latter in mind, so that much difficulty has been experienced in adapting or interpreting the requirements to apply to the farmer's problem. This has given rise to a number of seeming contradictions and arbitrary pronouncements, while the situation has been further complicated by the modifications made in the Agricultural Credits Act of 1923.

Section 13a (section 13 as amended March 4, 1923) admits of rediscounting notes, drafts and bills of exchange issued or drawn for