ADDITIONAL CAPITAL FOR FEDERAL LAND BANKS

DECEMBER 18, 1931.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. STEAGALL, from the Committee on Banking and Currency, submitted the following

REPORT

[To accompany H. R. 6172]

The Committee on Banking and Currency, to whom was referred the bill (H. R. 6172) to amend the Federal farm loan act, as amended, to provide for additional capital for Federal land banks, and for other purposes, having considered the same, report favorably thereon with the recommendation that the bill do pass.

The Federal land banks are confronted with difficulties which have affected the market for their bonds and ham; ered the officials of the banks in conducting transactions with borrowers. The banks obtain funds with which to supply loans to farmers by the sale of bonds for which the entire 12 banks are jointly liable. The law provides that bonds sold by the banks shall be secured by mortgages of the borrowers. Some of the banks have found themselves in a situation where they are not in position to maintain the requisite mortgage security to support their bonds. The bill seeks to supply the banks with funds to enable them to meet payments on bonds and to make additional loans without being forced to foreclose mortgages in cases where it is not desirable to do so.

Section 1 of the bill authorizes the appropriation of the sum of $100,000,000 out of the Treasury of the United States to be advanced by the Secretary of the Treasury upon request of the board of directors of any Federal land bank made with the approval of the Federal Farm Loan Board to be called for upon 30 days' notice, any sums thus supplied to any bank to be covered by stock of such bank to be issued to the Treasury.

The stock subscribed by the Treasury in any bank is to be reimbursed to the Treasury from time to time as its capital stock passes into the hands of borrowers.

The original Federal farm loan act provided for subscriptions by the Government in the amount of $750,000 to each of the Federal land banks, and the Government subscribed to the capital stock of each bank accordingly. Under the original act each borrower is required to take five per centum of his loan in capital stock, and the amount of the initial capital stock acquired by the Treasury was repaid as fast as the capital stock subscribed by the borrowers was sufficient to absorb it.

The bill also authorizes the directors of any bank, with the approval of the Federal Farm Loan Board, to pay off and retire at par, in whole or in part, out of any available resources of such bank the capital stock subscribed by the Treasury. All money paid into the Treasury for retiring such capital stock held in any Federal land bank is to remain in the Treasury and to be available again for the purchase of capital stock in any Federal land bank as provided in the bill (sec. 1).

It is thought that the sum of $100,000,000 will be sufficient to replenish the capital of the banks to make practicable the operation of the banks as contemplated by the Federal farm loan act.

The Federal land banks have, in round figures, outstanding capital stock of $65,000,000. The total bonded indebtedness is $1,172,478,700. The mortgage indebtedness to the banks amounts to $1,171,699,700, representing 408,000 first mortgages. The interest on bonds of the banks is payable semiannually and the interest rate charged borrowers can not exceed more than 1 per cent per annum the rate borne by the bonds of the bank making the loan.

The 12 Federal land banks, on November 30, 1931, showed 76.5 per cent of the loans were not delinquent; 12%1⁄2 per cent of the installment payments on mortgages were delinquent less than 90 days; and 11 per cent were delinquent over 30 days.

If the banks can obtain funds that will make possible refunding of outstanding high-rate bonds, it will enable them to obtain funds at a lower rate, which, in turn will be reflected in the rates charged borrowers.

There has been only one sale of bonds since 1928, and that was for the amount of $20,000,000 short-term bonds.

Section 2 of the bill merely requires that each Federal land bank shall carry to its reserves account semiannually 50 per cent of its net earnings until such reserves shall equal its outstanding capital stock before paying any dividends. After the reserves of any bank shall equal its capital stock, only 10 per cent of the net earnings is required to be added to the reserves account.

Section 3 provides for building up the reserves of national farm loan associations by requiring that 20 per cent of the net earnings of any association shall be added to its reserves until the same shows a balance equal to its outstanding capital stock before any dividend shall be paid.

Section 4 of the bill provides that installments on mortgages that are unpaid may be accepted in equal amounts over a period of five years to be paid at the time of paying regular installments to become due. The section seeks to authorize the officials of the banks to handle foreclosures in a common-sense way to promote the interest of the bank and avoid arbitrary foreclosures, working unnecessary hardship upon borrowers.

In conformity with section 2a, of Rule XIII, of the House Rules, there is herewith printed section 5, section 23, section 24, and section 25 of the Federal farm loan act, as they will read with the amendments proposed in this bill, such amendments being printed in italics, and the part to be stricken out in brackets, as follows:

SEC. 5. That every Federal land bank shall have, before beginning business, a subscribed capital of not less then $750,000. The Federal Farm Loan Board is authorized to prescribe the times and conditions of the payment of subscriptions to capital stock, to reject any subscription in its discretion, and to require subscribers to furnish adequate security for the payment thereof.

The capital stock of each Federal land bank shall be divided into shares of $5 each, and may be subscribed for and held by any individual, firm, or corporation, or by the Government of any State or of the United States.

Stock held by national farm loan associations shall not be transferred or hypothecated, and the certificates therefor shall so state.

Stock owned by the Government of the United States in Federal land banks shall receive no dividends, but all other stock shall share in dividend distributions without preference. Each national farm loan assocaition and the Government of the United States shall be entitled to one vote for each share of stock held by it in deciding all questions at meetings of shareholders, and no other shareholder shall be permitted to vote. Stock owned by the United States shall be voted by the Farm Loan Commissioner, as directed by the Federal Farm Loan Board. It shall be the duty of the Federal Farm Loan Board, as soon as practicable after the passage of this act, to open books of subscription for the capital stock of a Federal land bank in each Federal land bank district. If within thirty days after the opening of said books any part of the minimum capitalization of $750,000 herein prescribed for Federal land banks shall remain unsubscribed, it shall be the duty of the Secretary of the Treasury to subscribe the balance thereof on behalf of the United States, said subscription to be subject to call in whole or in part by the board of directors of said land bank upon thirty days' notice with the approval of the Federal Farm Loan Board; and the Secretary of the Treasury is hereby authorized and directed to take out shares corresponding to the unsubscribed balance as called, and to pay for the same out of any moneys in the Treasury not otherwise appropriated. Thereafter no stock shall be issued except as hereinafter provided.

After the subscriptions to capital stock by national farm loan associations shall amount to $750,000 in any Federal land bank, said bank shall apply semiannually to the payment and retirement of the shares of stock which were issued to represent the subscriptions to the original capital twenty-five per centum of all sums thereafter subscribed to capital stock until all such original capital stock is retired at par.

At least twenty-five per centum of that part of the capital of any Federal land bank for which stock is outstanding in the name of national farm loan associations shall be held in quick assets, and may consist of cash in the vaults of said land bank, or in deposits in member banks of the Federal reserve system, or in readily marketable securities which are approved under rules and regulations of the Federal Farm Loan Board: Provided, That not less than five per centum of such capital shall be invested in United States Government bonds.

It shall be the duty of the Secretary of the Treasury on behalf of the United States, upon the request of the board of directors of any Federal land bank made with the approval of the Federal Farm Loan Board, to subscribe from time to time for capital stock of such bank in an amount or amounts specified in such approval or approvals, such subscriptions to be subject to call in whole or in part by the board of directors of said bank upon thirty days' notice with the approval of the Federal Farm Loan Board. The Secretary of the Treasury is hereby authorized and directed to take out and pay for shares having an aggregate par value equal to the amounts so called; and to enable the Secretary of the Treasury to pay for stock issued hereunder there is hereby authorized to be appropriated the sum of $100,000,000. Shares of stock issued pursuant to this paragraph shall be paid off at par and retired in the same manner as the original capital stock of said bank after said original stock outstanding, if any, has been paid off and retired: Provided, however, That stock issued from time to time pursuant to this paragraph may, in the discretion of the directors and with the approval of the Federal Farm Loan Board, be paid off at par and retired in whole or in part; and that sara board may require such stock to be paid off at par and retired in whole or in part out of available resources of said bank. The proceeds of all repayments on account of

stock issued pursuant to this paragraph shall be held in the Treasury of the United States and shall be available for the purpose of paying for other stock thereafter issued pursuant to this paragraph.

SEC. 23. That every Federal land bank, and every joint stock land bank, shall semiannually carry to reserve account twenty-five per centum of its net earnings until said reserve account shall show a credit balance equal to twenty per centum of the outstanding capital stock of said land bank. Whenever said reserve shall have been impaired, said balance of twenty per centum shall be fully restored before any dividends are paid. After said reserve has reached the sum of twenty per cen um of the outstanding capital stock, five per centum of the net earnings shall be annually added thereto. For the period of two years from the date when any default occurs in the payment of the interest, amortization installments, or principal on any first mortgage, by both mortgagor and indorser, the amount so defaulted shall be carried to a suspense account, and at the end of the two-year period specified, unless collected, shall be debited to reserve account.

After deducting the twenty-five per centum or the five per centum hereinbefore directed to be deducted for credit to reserve account, any Federal land bank or joint stock land bank may declare a dividend to shareholders of the whole or any part of the balance of its net earnings. The reserves of land banks shall be invested in accordance with rules and regulations to be prescribed by the Federal Farm Loan Board.

Effective beginning with the first full semiannual period, ending June 30 or December 31, following the enactment of this paragraph, every Federal land bank shall carry to reserve account semiannually a sum not less than 50 per centum of its net earnings until said reserve account shall show a credit balance equal to the outstanding capital stock of said land bank. After said reserve shows a credit balance equal to the outstanding capital stock 10 per centum of the net earnings shall be added thereto semiannually. Whenever said reserve shall have been impaired it shall be fully restored before any dividends are paid. No Federal land bank shall declare or pay a dividend or dividends to shareholders unless approved by the Federal Farm Loan Board. Stock owned by the Government of the United States in Federal land banks shall receive no dividends. In the case of Federal land banks the requirements of this paragraph shall be in lieu of the requirements of the first three sentences of this section and of the requirements as to percentages of reserves stated in the second paragraph of this section. This paragraph shall not be applicable to joint-stock land

banks.

The first three paragraphs of section 24 of the Federal farm loan act, as amended (U. S. C., title 12, ch. 7, secs. 911-913), are amended, effective beginning with the first full semiannual period, ending June 30 or December 31, following the enactment of this act, to read as follows:

SEC. 24. That every national farm loan association shall, out of its net earnings, [semiannually] carry to reserve account semiannually a sum not less than [ten] 20 per centum of such net earnings until said reserve account shall show a credit balance equal to [twenty per centum of] the outstanding capital stock of said association. After said reserve shows a credit balance equal to the outstanding capital stock 5 per centum of the net earnings shall be added thereto semiannually.

Whenever said reserve shall have been impaired, said credit balance of twenty per centum] it shall be fully restored before any dividends are paid. [After said reserve has reached said sum of twenty per centum, two per centum of the net earnings shall be annually added thereto.]

After deducting [the ten] 20 per centum or the [two] 5 per centum hereinbefore directed to be credited to reserve account, said association may, at is discretion, declare a dividend to shareholders of the whole or any part of the balance of said net earnings.

The reserves of farm loan associations shall be invested in accordance with rules and regulations to be prescribed by the Federal Farm Loan Board.

Whenever any farm loan association shall be voluntarily liquidated a sum equal to its reserve account as herein required shall be paid to and become the property of the Federal land bank in which such loan association may be a shareholder.

SEC. 25. That if there shall be default under the terms of any indorsed first mortgage held by a Federal land bank under the provisions of this title, the national farm loan association through which said mortgage was received by said