sixty-three but made 15,916 loans amounting to $138,684,779. The loans of the joint stock land banks in previous years had been insignificant compared with those of the federal land banks except during 1919. Before that time the hesitation of the private mortgage bankers and the newness of the system were responsible, while after 1919 the suit on the question of constitutionality and disorders in the financial markets restricted activity. The resumption of loaning operations on a large scale in 1922 seemed to indicate that in the not distant future the business of the joint stock land banks would exceed that of the federal land banks. This prospect led the Board to include in its annual report a suggestion that Congress consider the "serious question as to the wisdom of providing for a great system of mutual or coöperative farm credits and at the same time providing under the same administration for profit-making organizations to become its chief competitor, and [to] raise the further question of whether legislation should not be enacted to make the system ultimately entirely mutual."

62

The increase in the number of loans made by both federal land banks and joint stock land banks necessitated more work for the Bureau in its supervision of the system. To make sure there would be an adequate staff to examine the securities offered for the bonds, Congress made a supplemental appropriation on July 1, 1922, of $35,000 for the salaries and expenses of four reviewing appraisers during the fiscal year, 1923. This appropriation carried the interesting proviso that on January 1, and on June 1, 1923, the Board should assess the expenditures made from the appropriation during the preceding six months against the federal land banks and joint stock land banks in proportion to their gross assets, and the funds collected were to be covered into the Treasury as miscellaneous receipts.

63

The Amendment of March 4, 1923. The sudden drop in agricultural prices in 1920 and their subsequent failure to reach a point where the farmers' purchasing power even approximated

61 Ibid., pp. 4-5.

62

63

42 Stat. L., 767, 776.

The precedent of the federal reserve system of making the system and not the government pay for its supervision by the government was thus partially adopted.

what it had been, brought about a serious agricultural situation. The distress of the farmers throughout the country turned public attention again on all factors affecting the farmers' prosperity. The ensuing discussion was both heated and protracted and, as usual in times of agricultural depression, there were many political manifestations of the discontent in agricultural communities. Large numbers of bills designed to give relief to the distressed farmers were introduced into Congress and numerous investigations were made. In all the considerations of these measures the operations of the federal farm loan system were extensively reviewed and the possibilities of aiding the farmer through that agency were examined.

64

One of the important results of this Congressional activity was the passage of the Agricultural Credits Act on March 4, 1923, which provided in one section for the establishment of an intermediate credit system, part of which was to be attached to the federal farm loan system. A consideration of this and the legislative history of the law is given below. Another section of the law contained some important amendments of the Federal Farm Loan Act, based in part upon the recommendations of the Board and in part upon the views of others as to the changes needed. Eleven changes were made in the federal farm loan system.

The most fundamental change had to do with the permanent organization of the federal land banks. The opinion of the Federal Farm Loan Board almost from the very beginning, was that the provisions of the law by which the coöperative associations of borrowers should take control of the federal land banks after a brief period of government control were unwise and should be changed. This attitude was based on the Board's belief that the bonds of the federal land banks could not be sold in sufficient quantity and at satisfactory rates if the borrowers were in control of the banks.

65

Another and perhaps a more serious reason developed from the experience gained during the operation of the system. It had soon

65

42 Stat. L., 1454.

“It is doubtful if the direct management and control of any bank which is dependent upon borrowed capital for its continued operation can be safely delegated to the borrowers from such bank.”—Annual Report, 1917, p. 13.

become apparent that despite the expressed intention and expectations of the creators of the system, the coöperative features of the system never materialized. Not only did the system fail to induce the farmers to coöperate for other purposes, but the system itself was a failure as a coöperative enterprise. The explanation lies in the fact that once a farmer has obtained his loan there is nothing further to keep alive his interest in the national farm loan association or to cause him to participate actively as a member of the association." The prospect of dividends on the bank stock owned by the borrower and the possibility of liability in case of failure proved too small to retain the individual's interest in the association. The result in the words of Mr. Lobdell, then a member of the Board, referring to conditions in 1922 was “ There are four thousand four hundred odd of these associations. Last year less than 400 out of 4000 held annual meetings; that is, had enough interest to get together and elect directors.""

These considerations and the recommendations of the Board led Congress to change the law notwithstanding the objections that were raised by some." In some ways the new method of organizing the federal land banks was a compromise as absolute control was not given to the Board. The new provisions specified that three directors, known as district directors, were to be appointed by the Federal Farm Loan Board. Three other directors, known as local directors, were to be elected by the national farm loan associations. For the purpose of electing these directors the district was to be divided into three divisions, from each of which one director should be chosen. Each association in each division was to nominate one man, and from a list of the ten persons receiving the greatest number of votes the local director was to be elected. The seventh director of the federal land bank, known as the director at large, was to be chosen by the Board from the

* Mr. Herbert Quick, one of the original members of the Board, in summarizing a lot of testimony on this point said: “The rule in the farm loan association is that they organize, they hold their meetings and they get their money, and when they do that they are done; they never have another meeting at which there is a quorum."-Hearings before the House Committee on Banking and Currency, 67 Cong. 4 sess., on H. R. 13125, p. 92.

67 Ibid., p. 21.

68

Ibid., pp. 45-91 and 129-175. See also the article of Senator Fletcher in the New York Times of September 9, 1923, and his speech in the Senate on February 3, 1922.

three persons securing the greatest number of votes for director at large from the associations. The director at large could be removed by the Board for neglect of duty, incapacity for the work, or malfeasance in office after charges had been preferred and a hearing held on them. The term of office for all directors was fixed at three years.

By another change in the law the number of members on the Federal Farm Loan Board was increased from five to seven, including the Secretary of the Treasury ex-officio. The restriction that not more than half of the appointed members could be of one political party was continued.

Of more importance was the amendment which provided that the Board should semi-annually estimate the total expenses of the Federal Farm Loan Bureau and assess the federal land banks and joint stock land banks in proportion to their gross assets. The funds collected were to be deposited with the Treasurer of the United States and disbursed only upon appropriations made by Congress. Provision was made for discrepancies between the estimates of expenses and actual expenses by applying the difference to the next payment or making an immediate assessment to cover a deficiency. This relieved the government of all expense for supervising the system.

Another important amendment increased the loan limit by federal land banks to any one person from $10,000 to $25,000. In doing this Congress followed the repeated suggestion of the Board, designed to aid the federal land banks in competing with the joint stock land banks.

The restrictions upon the purposes for which the loans made by federal land banks could be used were liberalized by including among the purposes permitted the liquidation of indebtedness incurred for any purpose if incurred prior to January 1, 1922. The previous restriction had permitted the liquidation of indebtedness incurred for only agricultural purposes or incurred prior to the organization of the first farm loan association established in and for the county in which the land was situated.

The remaining changes were relatively minor. One authorized the establishment of a branch of a federal land bank in Alaska upon terms similar to those which had been drawn up for the branch in Porto Rico, except that the maximum loan was fixed at $10,000 for both. Another provided that no secretary-treasurer of a

national farm loan association could engage in making loans, eligible at a federal land bank, through or for any other land mortgage company or agency. The twelve land banks were authorized to issue consolidated farm loan bonds in addition to the bonds of the individual banks, which had been the only bonds previously issued. In this connection the presidents of the twelve banks were to form a committee to determine the amount of each bond issue and the rate of interest each should bear and to submit their recommendations to the Federal Farm Loan Board for its approval which, as previously, was necessary. Another change relieved agents of the banks, through whom loans might be granted to farmers, but not the national farm loan associations, of liability in case of default. In the event of the liquidation of any national farm loan association it was provided that the bank stock held by the association was to be cancelled, and bank stock was to be issued directly to the borrowers through that association equal to the amount of stock they had owned in the association. The double liability of the borrowers was not to be affected by this change.

Operations in 1923. In accordance with the new law the federal land banks were reorganized on a permanent basis during 1923. No innovations due to the new organization of the federal land banks have been apparent during the short time that the new régime has been in existence.

Taking advantage of the authority given in the amendment of 1923 the twelve presidents of the federal land banks met as a bond committee and established the position of fiscal agent who was to act as common agent for the banks in making bond sales." The

“The Annual Report of the Federal Farm Loan Board for 1923 includes as Appendix 14, a statement showing the persons nominated by the associations for director at large and for local directors and also the vote cast for each. Severe criticism of the manner in which the elections were held are to be found in the Hearings before the Senate Committee on Banking and Currency, 68 Cong. I sess., on Nominations of members of the Federal Farm Loan Board.

10 The fiscal agent appointed was Charles E. Lobdell, who had been a member of the Federal Farm Loan Board from its organization and farm loan commissioner for three years. His appointment as fiscal agent at a salary of $25,000 a year aroused hostile criticism. See the discussion in the Senate, Congressional Record, December 10, 1923, p. 151, and May 21, 1924, p. 9267. See also the Hearings before the Senate Committee on Banking and Currency, 68 Cong. I sess., on Nominations of members of the Federal Farm Loan Board.