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Circular No. 5
Series 1926


December 15th, 1926

To the Member Bank Addressed:
This circular supersedes our Circular No. 3, Series of 1926, entitled “ Live Stock Finan­
cing,” and has been issued with a view of clarifying certain matter contained therein, which
in some cases appears to have been misunderstood.
Our Board of Directors has decided to reserve the right to require that member banks
furnish the following information in connection with notes of $2,500 or over secured by a first
mortgage lien on live stock, unless accompanied by financial statements of makers which evi­
dence the credit acceptability of the notes offered, independent of live stock under mortgage:
(1) A report of inspection of the live stock securing the note, such inspection having
been made not more than thirty days prior to the date of the note offered.
(2) Certificates from the County Clerk of the county or counties in which the mortgages
are filed, showing all liens on record against the live stock securing the note offered.
(3) Full information regarding the range on which said live stock is located, i.e., whether
owned by the mortgagor or leased. If under lease, date of entrance of the livestock on the
property, statement of range owner’s or landlords’ liens, or any unpaid rentals, will be required.
(4) Tax Collector’s statement or other satisfactory evidence showing taxes and/or forest
permit fees paid, or if unpaid, amount due and payable, on live stock under mortgage.
While this circular refers only to what may be termed strictly live stock loans, it is not
intended to discriminate against this class of paper, which will be considered by the Discount
Committee in the light of the information available, the same as any other paper. Where
live stock paper is supported by financial statements which, in our judgment, reflect credit
acceptability, or where we are in possession of other information which would warrant our
accepting the paper, the data enumerated in paragraphs numbered 1, 2, 3 and 4 above will not
be required. The information in the paragraphs referred to is necessary only in the case of
live stock loans the payment of which is largely or wholly dependent upon the live stock under
mortgage or where there is apparently an insufficient margin, at conservative valuations,
between the value of the security and the amount of the loan.
While this circular is intended primarily to outline our own requirements where live stock
paper is offered to us, nevertheless, our practical experience with a number of member banks
has clearly demonstrated the value of proper inspection reports to the member bank itself.

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For your consideration we offer the following suggestions as to what, in our judgment,
constitutes a satisfactory inspection report and what we should expect it to cover in cases
where it is required: (a) the name and address of the mortgagor, (b) class and kind of live
stock and where located, (c) the number of live stock covered by the mortgage which have
been actually counted, and in those cases where several classes are covered by mortgage, a
detailed classification thereof, (d) marks and brands and in whose name registered, (e) infor­
mation relative to condition of the range, its carrying ability and fattening qualities, (f)
information as to whether the live stock is located in quarantined territory.
Inspection should be made by a reputable, practical stockman, preferably an inspector
employed or accredited by some responsible live stock association or organization, a cattle loan
company or the Federal Intermediate Credit Bank, which affiliation should be verified by
the inspector.
Where a member bank has regularly in its employ a representative who inspects cattle
securing loans made by it, his report of inspection will be given full consideration, partic­
ularly when supported by affidavit of the owner of the live stock showing number and class
under mortgage.
We believe that the adoption of the above suggestions will tend to improve credit prac­
tices and that, by definitely establishing values supporting live stock loans, the hazard in con­
nection therewith will be greatly reduced. The co-operation of member banks along the lines
indicated will not only enable this bank to more intelligently and fairly pass upon the credit
acceptability of live stock paper but will also tend to stabilize and render such paper much more
Yours very truly,


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102