The Federal Farm Loan System

Report Outline
Establishment of Federal Farm Loan System
Development of Federal Farm Loan System

The first federal land bank was chartered March 1, 1917, under the Federal Farm Loan Act of 1916, and the first joint stock land bank April 24, 1917. The federal farm loan system thus established has now been in operation ten and a half years. The system at present consists of the 12 federal land banks authorized in 1916, 52 joint stock land banks, and the 12 intermediate credit banks established under the Agricultural Credits Act of 1923. All of these institutions are under the supervision of the Federal Farm Loan Board. They now have about $1,815,500,000 of agricultural loans in force, and about $1,735,000,000 of their bonds and debentures outstanding.

Rumors that certain of the joint stock land banks were in an unsatisfactory condition led the Secretary of the Treasury late in 1926 to propose an intensive examination of certain of these institutions. The examination was ordered upon his motion as ex officio chairman of the Farm Loan Board. At the same time the Treasury Department sought legislation to transfer to that department the examining functions of the Farm Loan Board and the power to regulate the accounting methods and reserve policies of the banks making up the farm loan system. This legislation was vigorously and successfully resisted, however, by representatives of the organized farmer borrowers who regarded it as an effort to bring about “Treasury domination” of the system.

While the legislation was pending some alarm was spread among investors by statements of Treasury officials that while farm loan bonds were “instrumentalities of the United States” there was no obligation upon the United States Government to redeem them in case of default by the banks. The concern felt by investors was not entirely quieted by the statement of Assistant Secretary of the Treasury Dewey before the House Committee on Banking and Currency that “in the investigation of various banks of the system we believe that the bonds of all the joint stock land banks and federal land banks, and the debentures of the intermediate credit banks are perfectly sound investments at the present time.”