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FEDERAL RESERVE BOARD
WASHINGTON
X-3329
Febr~ary
SUBJECT:
15, 1922.
Bill to enlarge po:iers of Farm Lean Banks
Dear Sir:
There is enclosed herewith, for your information_.·
copy of a letter addressed by the Board., on January 26, 1922,
to the Chairman of the Committee on Ban).dng and Currency of
the United Staten Senate, endorsing S. 3051 which proposes
to enlarge the powers of the Farm Loan Banks. This bHlJ
which was introduced by Senator Lenroot, is the same as
H. R. 10058, introduced in the House of Representatives by
Mr. Anderson, and embodies the reco~~endations of the Joint
Commission of A6ricultural Inquiry.
Very truly yours,
Gcver·nor.
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CHJIIRMEN .AND GOVERNORS OF .ALL F.R-BANKS •
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FEDERPL RESERVE BOARD
~.lashint::ton
Jan;;.ary 26, 1922.
X-33?.Sa
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My dear Mr. C;1airman:
Receipt is acK.:.o~~led~ed of your letter of January 23 1
1922, encl o"'int-: a co·ny of Senate Bill 3051 and reque::otint;_ the
views of the Federal Reserve Board witn rebard to it. This is
the bill, the enactment of ~hich is recorn~ended in the recently
published report of the J oht Comn;ission of Abricul tural Inquiry.
Tne same bill has ·also "been introciuced in the HousE> of Rep resentatives as H. R. 10056.
While t;1e proposed bill deals mainly with the :Federal
Farm Loan Systerr: 1 the administration of which does not, of course 1
come vv i thin the jurisdiction of the Fecteral Reserve Board, the
Board is ~;;lad of the opportur1ity to say that the bill nas its
cordial approval and support. Tne Board believes the bHl to be
sound and constructive lesislation that is well desi1:;ned to afford
much needed relief to asricultural aLd live stock interests by
adding to their available credit f acHi ties, which at the present
time are not adequate for their requireL;ents.
The bill proposes to add to the Federal Faril~ Loan Act
a new title 1 Title 11., con>:oisting of Sections 201 to 209. SubdivisiOL (a) of Section 201 provides ti:1at eac'~ Federal land. bank}
subject to resulation by the Federal Farm Loan Board, may discount
for any bank or live stock loan company 1 v,rith the endorsement of
such bank or company 1 any note or other such oblig_ation the proceeds of which have been used for an asricultural purpose or for
the raising, breeding, fattenins or marketin),S of live stock~ and
may make loans to any coonerative association of producers of
staple agricultural products upon the security of warshouse receipts covering such products. Subdivision (b) of Section 2Dl
provides for the issuance by Federal land banks of debentures or
other such obligations with maturities not in excess of three
years secured by discounts or loans made under subdivision (a).
Section 204 provides that any Federal reserve bank may discount
for a Federal land baEk 1 ur on t.1e lat ~er 1 s er::.dorser;,er.t, disco:mts
or loans made under Sectio1:c 201 ;,.r,ic;·, nave a naturity at tne time
of discount by t11e Fedsral reserve bank not in e/~cess of six
months 1 ar~d Section 2.CS provides t:J.at any Federal reserve oar.k ,r,_ay
..
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X-3329a
buy and sell the debentures and other obl is,ations of a Federal
land bank issued under Section 20~ to the sar:e extent and
subject to the same limitations as those upcn 11hich ".;hey may
buy and sell Federal fann loan bonds, The oth0r f3e'::Uons of
the ne•.- title provide for the creation of a nfann cred:i.ts
department 11 in each Federal land bank for the purpose of exercisinb the po~ers conferred by the title 1 and provide that
the capital of each sucn department shall be $1, COOJ OC01 to be
subscribed by the UrJj. ted. States 1 ru.d contair1 certaJ.n other
necessary administrc;:U.ve provisions iihi0h are not importar,t
for t(le purposes of tni s seneral discussion.
At the present tirr.e the Federal E'arm Loar1 Act provides
the rr.eans for s:.tpplyins the farmers lcnes til::e crer.L.ts u:;on the
securi t.y of first mc.rt.g,a;;es upon ag,r Lcul tural lands; and uncier
the terms of the Federal Reserve Act ag_ricul tural paper with
a maturity not :i,n ex.cGss of six months is eligible for rediscount
by Federal reserve banks after it bas beer. disc0unted and endorsed by a member bank of the Federal Reserve System.
As
pointed out, hmvever, in the Report of the Joint Commj ssion of
.Ag,dcultural Inquiry, there is need for agricul tu.::-al cndi ts of
an intermediate type, running, from six months to three years, for
production and :narketing purposes. The farmers 1 turnover in the
production of crops; including the plantir:g, harvesting and
gradual marketinf; through orderly pror.esses designed to avoid
flooding the market at any one time, norwally requires approximately twelve months; and in the live stoc~c j ndustry the turnover ·
may require as long as threa years.
Conseque.rtly, in order to
make it possible for the farmer and lJ.ve stoc~ :ran to liqu:i.date,
out of the ultimate proceeds of his a)c;ricul tural t.ra"1sactions,
his indebtedness incurred for production and marketinb purposes,
it is necessary that such indebtedness be permitted to run for
periods ranging from six months to three years, depencii·;g u-r:on the
particular commodities being, produced and marketed.
Loans with such maturities cannot be ;;ranted, jn sufficient
amounts to meet the ;1eeds of agriculture .. by ordinary bankir.e, institutions the liabilities of which are for the most part payable on
demand~ unless the banks can rely on beiut; able to redisG0'.mt the
loans in smeresenc1es. The main purpose of the bill undor consideration~ as the Federal Reserve Boari understands it, is to provide
proper ar.d adequate facilities for such rediscountz.
Bills have been introduced in Con~.ress within the
proposing_ to amer.d tn.e Fecl.eral Reserve .Act so as to make
for discount by Federal reserve bar1ks agricultural paper
maturities up to twelve months, instead of six n;onths as
past year
elit:ible
iVi th
the law
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X-3329a
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now provides.
The 3oard has expressed its disapproval of these
and· similar bills, ber;ause the enactment of any such bill ·would
materially lessen both the liquidity of the paper held by tne
Federal reserve banks and the elasticity of t~1e Fed<?ra..l :reserve
note currency which is based upon anJ s2-cu::-ed by the paper so
held. The bill reccmmencled by tne Jo:i.m Commission of A§,:·icultural Inquiry avoids tr,is danger, ar,d at the sa'lle ti::e offers
far more adequat3 rel isf to the ae;rict<l t1.<raJ. interests of the
country than could be ol)tained throu:;h tr1e enar.tment of such an
amendment to tne Fe::iel·al Reserve Act.
The l<~ederal Resen'e Board has carefully eYam:i.necl. the bill
introduced in the Senate as S. 3051, and. in tne House of Representatives as H. H. lOC58, etnd ap~roves Lot only the pu;:pose and
substance of the b~.11, but also the form and languag-:1 tltet have
been acl.olJted in drafting it. The Board is of the cpim.otJ that
the bill is admirably designed to accoml)lish the pu.rposos Yihich
its framers have in mind and that its various provis:i.t•ns are so
coordinated as to provide the most efficient machinery for the
performance of the new functions of the Fedora1 land banks without
in any way interfering wHh their present activities.
Very truly yours 1
(Signed.) W. P. G.• HllRDING
G o v e r n o r.
Hon. George P. McLean, Chairman,
Committee on Banking and Currency~
United States Senate.
@FedFRASER