farmers so much money to make the crop, and you can not turn around and loan money now to carry the crop."

You are tapping the same source of credit.

I gather this idea: What you want is a separate and distinct credit association, a separate and distinct source of credit. I want to remaind you of thisMr. WINGO (interposing). In other words, you contend that the three separate classes of credits are so separate and distinct that it would be better for all of the classes if each of them had separate and distinct machinery? Mr. PETERS. I think it would. I would remind you of this: What are you going to do with this situation? The farmer in the fall of the year, the spring, or summer, whichever may be his harvest season, wants to hold corn, oats, or wheat. He goes to the local credit association to borrow money on either of those commodities, and the association says: "You have defaulted in the interest on your land mortgage. We can not loan you any money. What are you going to do then?"

Mr. WINGO. Somebody is going to loan him the money to pay it, and he is going to sign another note.

Mr. PETERS. You know one of the regulations of the loan association in our State is that they will not make any new loans if the interest is in default.

Mr. BLACK. This short-time credit is not to be distributed through a national farm loan association?

Mr. PETERS. I understand it goes to the same head and is passed on eventually by the same officers who passed on the long-time loans.

Mr. WINGO. In other words, this Lenroot-Anderson bill will set up a separate and distinct system in fact, but it will put its management and its operations under the guidance and in the hands of men who are handling the land investment credit system?

Mr. PETERS. Yes.

Mr. WINGO. And your contention is that they are selected primarily for their wisdom and experience in handling land mortgage business and not intermediate credit business?

Mr. PETERS. Not this intermediate credit business.

Referring further to the Lenroot-Anderson bill, the capital is entirely too small-$60,000,000 is not sufficient-$5,000,000 for each of the land districts. Mr. STEVENSON. If they can sell ten times this, it would run up to $600,000,000. Mr. PETERS. But suppose they can not sell these debentures?

Mr. STEVENSON. That is a question I would like to have a practical banker's opinion on. How much would it really take? How much would be reasonably sufficient?

Mr. PETERS. You mean to finance agriculture?

Mr. STEVENSON. Yes, sir; this intermediate credit for agriculture.

Mr. PETERS. It would have required in 1920, I should say, in our State-as I recall the bills payable were approximately $65,000,000 in the beginning of the harvest season. Now, if we had borrowed just enough to pay the bills payable, without paying taxes or discharging any of the other obligations, it would have required $65,000,000. I should say that we could have very handily used $100,000,000.

Mr. STEVENSON. In what State?

Mr. PETERS. Georgia.

Mr. WINGO. If you are through on that point, Mr. Stevenson?


Mr. WINGO. You say you are talking on the Lenroot-Anderson bill. You have read the Capper bill, have you not?

Mr. PETERS. Yes, sir.

Mr. WINGO. The Capper bill, as I understand, sets up separate and distinct machinery that you think will apply mainly to these cattle associations-they provide a local bank and call it some other name that have capital stock of a quarter of a million dollars; it provides a reserve, rediscount bank, or whatever you may call it, that has a maximum capital of $1,000,000. You are going to provide for the intermediate credits for cattle growers. Is it possible to enlarge 1 develop that kind of a proposed plan where it will take care of the intercredits not only of the cattle growers but also all agricultural prootton, wheat, and wool?

ERS. It seems that the Capper bill, as I have read it, is hedged about limitations.

GO. I am not saying that is my opinion, but there seems to be an ating around the Capitol that the Capper bill is all right; that there

is no use going into it very much; that it is a kind of sop thrown to the farmer; that it is not going to set up any competition with you; it is not going to help out anybody but the cattle associations, and they are already organized, and it will kind of give them a Federal charter, and it is not going into the full line of intermediate credits; that you country bankers need not to be scared. That is not my idea.

Now, is it not possible to overcome that criticism to make the Capper bill or some other bill the basis for a genuine organization that will completely take care of the intermediate credit system; that is, from your viewpoint set up a separate system? Could not that be done?

Mr. PETERS. It would be necessary to enlarge the Capper bill very materially. In the first place, it provides no administrative board, and, in the second place, they must for rediscounts go into the open market. I do not see how the Capper bill could be enlarged unless you went into it and changed it from beginning to end to meet the needs of intermediate credits.

Mr. WINGO. Do you not think it would be a good deal better if we had taken this whole problem and undertaken to have covered it by one bill? Is it not possible to take care of the intermediate credits of the cattle grower in the same kind of machinery that you take care of the needs of a cotton grower?

Mr. PETERS. I see no objection to including the Capper bill in the LenrootAnderson bill and enlarging the two and give us a general credit organization. I see no particular need for the Capper bill in our section. I do not see how it could facilitate our credit machinery any.

Mr. WINGO. Your objection, then, primarily to the Lenroot-Anderson bill is that it hooks on the intermediate credit system, so far as supervisory control and handling and management are concerned, upon the land bank credit organization. That is your first primary objection?

Mr. PETERS. That is the first primary objection.

Mr. WINGO. What is your next suggestion?

Mr. PETERS. The second objection is that the capital is insufficient. Mr. WINGO. How much capital do you think we ought to have in that? Mr. LAWRENCE. I wanted to ask you a question: You said that the bills payable were $65,000,000 in your State. Do you mean the bills payable by the banks?

Mr. PETERS. That was the bills payable of the State banks that I refer to. I do not recall the amount of the national banks. Possibly the rediscounts of the national banks which were located largely in the cities are about the same as the State banks. I referred, however, primarily to the State banks, who are engaged largely in agricultural financing

Mr. WINGO (interposing). Just assume that you had the management that you suggest; that they set up the independent institution as you suggested and use the same machinery-that is, the primary machinery that is provided by the Lenroot-Anderson bill; how much capital would you say was necessary? Mr. PETERS. If you are going to subdivide that capital to the 12 land banksMr. WINGO (interposing). No; that you are going to have separate machinery, because the capital requirements would be the same, regardless of the machinery, would it not?

Mr. PETERS. No. We really do not agree with the provision of the capital as subdivided into 12 separate banks. We think it is much better to have a central bank here in the Capital with the capital stock, we will say, of approximately $500,000,000, with the right to issue debentures or bonds, so as to give us at least a total of $2,000,000,000 of credits.

Mr. WINGO. Your Federal land bank board issues the bonds as a matter of fact, although they issue them in the name of the small banks. If you had a central bank up here, you are going to have a pretty long haul, are you not? Mr. PETERS. Then it would be necessary for the central bank to establish agencies in the different sections of the country, as the needs require, and to discontinue those agencies when there was no demand.

Mr. WINGO. You mean personal agencies or bank agencies?

Mr. PETERS. Bank agencies, to collect loans.

Mr. WINGO. Do you mean a commercial bank?

Mr. PETERS. Oh, no; just an agency.

Mr. WINGO. If it is going to be a bank agency, would you set us a new bank? Mr. PETERS. A loan agency.

Mr. WINGO. Would make that an individual or commercial bank, or would you create a new system of local banks?

Mr. PETERS. The War Finance Corporation, as you recall, established 30 agencies in different sections of the country. Some of those agencies have been discontinued. It seems as though it would be very easy for the bill to provide for the establishment of a certain number of agencies. You might bane a maximum and minimum number in the different parts of the country.

Mr. WINGO. But you do not seem to catch the point. Would that agency you want established be an individual or group of individuals acting as a group not incorporated or would you have it incorporated, or would it be a local bank?

Mr. PETERS. I refer to the administrative feature of the act-not the bor rowing, but the administrative end.

Mr. WINGO. Well, take the administrative end. The administration is simply handling the credit and passing out the funds, and it is not going to be in actual dollars, but is going to be bookkeeping principally.

Mr. PETERS. From the borrowing standpoint, it seems that the better idea would be to provide that these funds might be secured either through the local country banks and also through cooperative buying agencies.

Mr. WINGO. You are going to have local agencies to fit the community life of America, whether it be a State, county, or town, whatever it is; that agency can only do certain things; an individual or group of individuals, such as a cooperative farm organization or live-stock organization; or it would be a bank. Would it be a commercial bank or would it be a separate banking corporation, provided for in the Capper bill or under the national banking act. It has got to take some form. What form would you suggest a cooperative local farm organization? Mr. PETERS. Yes.

Mr. WINGO (continuing). Or individual or commercial bank or a new class of banks, which?

Mr. PETERS. It seems that the preferable idea would be to have a cooperative borrowing agency among the farmers, and also country banks to discount their notes with this loan agency; that is, the central agency or administrative body would be here in Washington, and then allow this body to establish loan agencies or banks in the different parts of the country irrespective of the present location of the land banks.

Mr. WINGO. And you think it would be practical to have a central bank here handling all the administrative details of intermediate credits for a great nation like this and do it efficiently?

Mr. PETERS. With agencies established in different parts of the country, I do.

Mr. STEVENSON. I just want to call your attention to the fact that I think you are in error as to the amount of the capital stock. My attention has just been called to that. On page 6, section 203, it provides that there shall be $5,000,000 capital subscribed for the credit agency or the credit department of each bank; that is, 12 banks would make $60,000,000?

Mr. PETERS. That is true.

Mr. STEVENSON. Then, on page 7 it says that:

"If, at any time, the capital stock provided in the first paragraph of this section shall be found by the Federal Farm Loan Board to be insufficient to enable any farm credits department in a Federal land bank to meet the credit needs of the agricultural and live-stock industries," etc., then the Secretary of the Treasury shall go ahead and take more stock.

Then, down in the proviso, on page 8: "Provided, That the subscriptions to such additional capital in behalf of the United States shall at no time exceed in the aggregate to all said banks $60,000,000."

In other words, they start out with $60,000,000, and then they provide for additional capital, which shall at no time exceed $60,000,000, which would make it $120,000,000.

Mr. PETERS. The $120,000,000 is insufficient.

I think that the $120,000,000 would be a sufficient amount of capital if we were sure that these debentures were going to sell. But suppose when the need comes, when the corn, cotton, and wheat are made, and all these other agricultural products are harvested, and the time comes when the farmer needs this intermediate credit, and suppose the investing public will not buy them. Mr. WINGO. Then, in the last analysis, the capital is only the basis of the structure, and that it is more important to look to the details which current funds and credits are provided-not necessarily capital funds, but current credit. You have seen two banks side by side, one with only one-half the

capital stock of the other, and maybe the smaller bank doing the larger volume of business and extending the greater amount of credit to its patrons than the one with twice the capital stock. So, don't you make the mistake in magnifying capital requirements and not thinking primarily of what are going to be the credit possibilities and the aid that can be practically furnished using that capital as pyramided credit.

Mr. PETERS. That capital would be sufficient if the debentures should find sale. But will the debentures sell?

Mr. STEVENSON. The thing that will make them sell, if they sell at all, is the soundness of the structure which administers the whole thing.

Mr. MACGREGOR. Do you want $120,000,000 to come out of the Treasury?

Mr. BLACK. How much debentures would you expect to be sold?

Mr. PETERS. With a capital stock of $5,000,000 I think we could easily sell three times as much as the capital stock; whether you can sell ten times as much as the capital stock or not I do not know.

Mr. BLACK. The maximum loans of the War Finance Corporation, if I recall correctly, has been about $350,000,000 or $400,000,000. While I am not saying it as adequately meeting the needs at all, yet I think it has not exceeded that figure at any time.

Mr. WINGO. And to show you the mistake of taking the capital stock even in the minds of the investors, is it not true that you can go into the market and find some smaller corporations, with smaller capital stock, having a better market for their paper than some of the larger corporations, with exceedingly large capital stock, because the investing public has greater confidence in the security and the earning capacity of the machinery or the structure or the plant; and when you put out these intermediate credits, is it not going to be largely a question of confidence in the successful operation of the system, which will mean the successful liquidation of the credits at maturity; in other words, will they not be going more upon what is going to be back of the paper and not so much on what is back of the agency that is handling the paper? Is not capital stock, in the last analysis, the margin of safety for losses-a kind of special reservoir from which you may draw to meet unknown exigencies that might arise that produce extreme loss that can not be made out of the earnings?

Mr. PETERS. Yes; it is capital and surplus, of course, in the investor's mind which is the margin of safety. Then, he looks to the form of collateral that is behind the loans.

Mr. STEVENSON. Do you not believe that in the last analysis the volume of the paper that will be handled by whatever agents you set up will be determined more by the practicable operations of the system than will be by the amount of basic capital that may be invested in it?

Mr. PETERS. Very largely that is true.

Mr. STEVENSON. Is it not current capital and not basic capital; is it not getting current funds that bothers the American farmer?

Mr. PETERS. I rather think that is true. But if Congress should provide $60,000,000 and there was no reserve fund that we could draw from, if we could not sell these debentures I do not see that it would be worth much to us. Mr. BLACK. If the debentures will not sell, the verdict would be that the system was a failure?

Mr. PETERS. Yes.

Mr. STEVENSON. What is your idea about how it would affect the farm-loan system as now constituted to hitch this thing on it and put out debentures that may or may not sell?

Mr. PETERS. If you could tell me which one the board is going to love and which it is going to hate, I can tell you which one will succeed.

Mr. NELSON. In this system it seems to me it is possible that there is a certain field for an administrative board and a Federal land bank-that there are two distinct needs. You do not mean to say, that the local banker, for instance, just because he provides the means to meet the needs of long-time paper, therefor is not in sympathy with taking care of short-time needs, if it were made possible for him to do it?

Mr. PETERS. Not at all.

Mr. NELSON. Then, would it not follow just as truly that a larger board, with larger capacity, having the whole country in control, could also see that these two distinct needs of the farmers are properly cared for. and are properly

vouchsafed, and that they will be just as much interested that debentures be sold to the extent the public will consume or take them for the short time as they will for the other?

Mr. PETERS. I think that is true, and I have this suggestion to make along that line: If it is finally determined that the farm board is going to administer this short-time credit, may I offer the suggestion that the farm-loan board be increased to nine members and that we have two vice chairmen, four members and one vice chairman to be assigned to the administration of long-time credit and four members and one vice chairman to the administration of short-time credits? That might give us a board under the present farm-loan system that could be selected from the viewpoint of their ability to handle the short-time loans and they would be responsible then to the farmer's interests for the administration of the short-time credits.

The other feature I want to speak about, gentlemen, is with reference to the failure of the country banks to join the Federal reserve system. There seems to have been some criticism of the banks in the Senate hearing, and it occurred to me that the committee might like to have some information along that line. Would you or would you not?

Mr. LAWRENCE. Yes; and let me put this question: Why do not the State banks join the Federal reserve system?

Mr. PETERS. To make a summarized answer, I will say this: That the State banks who are not members of the Federal reserve system are staying out for the same reason that the banks that have joined—that is, the banks that are members are members because the facilities offered them meet their demands and the banks that remained out of the system remained out for the simple reason that the Federal reserv systém does not meet their demands.

Mr. LAWRENCE. Is not this a fact that by remaining out you keep your reserve with some correspondent in the city, where you get from 2 to 24 per cent on your balances, where if you were a member of the Federal reserve bank you would be bound to keep your reserve with the Federal reserve bank and receive no interest on your daily balances?

Mr. PETERS. That is one reason.

Mr. LAWRENCE. Is not that the main reason?

Mr. PETERS. I do not think it is so.

Mr. LAWRENCE. I think it is, from talking with them, that there is more profit staying out than there is in coming in.

Mr. PETERS. That is possibly true in your State, because in each State the paramount reason might be different in different States.

Mr. APPLEBY. What are the reasons in your State?

Mr. PETERS. The reasons our banks have not joined in a very large way are somewhat explained by what the gentleman has spoken of as "loss of interest on balance"; next is loss of exchange, and there are some other minor reasons; for instance, it is necessary for us to have two systems of examination. Both the Federal reserve banks and the State banking department make examinations. Then it increases rather than diminishes our cash reserve; that is another reason. Really, I should say the paramount reason with us is that it increases our cash reserve, requires more cash to operate in the system than out of the system.

Mr. LAWRENCE. You do not think the cash reserve is too large in the Federal reserve system?

Mr. PETERS. That is possibly not too large.

Mr. LAWRENCE. As a practical banker, my experience is that it is not large enough, because no bank can run with the reserve they call for.

Mr. PETERS. That is possibly so.

Mr. NELSON. You say one of the reasons is because it reduces the cash reserve in the bank in being a member of the Federal reserve bank?

Mr. PETERS. It increases the amount of operating cash.

Mr. NELSON. But the contrary is quite the fact, is it not, that you can get along with less cash reserves in being a member of the Federal reserve system than you do under the ordinary laws of the various States?

Mr. PETERS. I do not think that is true in our section.

Mr. NELSON. Let us see now: What is your cash reserve necessary under the law to be carried by State banks in Georgia?

Mr. PETERS. It is 25 per cent.

Mr. NELSON. The Federal reserve bank would be probably somewhere around 12 or 15 per cent, not over 15, and in some instances 12, depending on whether you have the majority in commercial deposits or time deposits.

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