The term, savings and loan association, shall include every corporation, company, or association doing business in this state and having for a part of its title or name the words building association, building and loan association, building and mutual loan association, savings and loan association, savings association, cooperative loan association, or co operative bank, and every corporation, company or associa tion whose shares are wholly or in part payable by accumula tive fund in regular or periodical instalments, or which is doing business in the form and of a character similar to that authorized herein.
The ordinary procedure is for the members to pay in dues periodically. Any member wishing to bor row makes an application which is acted upon by a committee. Some associations terminate as soon as they accomplish the purpose for which they organize.
In other cases the members wish to continue the asso .
elation even after they have ceased to borrow because of the opportunity for profitably investing their small savings. Then they begin loaning to outsiders who are building homes or buying real estate and can offer security. Losses are often heavy in this kind of busi ness, for the committee may not be able to judge as to the quality of security offered when they go beyond their acquaintances. A better plan is either to dis solve or try to find new members who will borrow. In any event, a competent banker should always be on the loan committee.
8. Investment companies.—The New York State law defines the class of financial corporation known as investment companies as follows: The term investment company means any corporation formed . . . for the purpose of selling, offering for sale, or negotiating bonds or notes secured by deed of trust or mortgages on real property or choses in action, owned, issued, negotiated or guaranteed by it, or for the purpose of receiving any money or property, either from its own mem bers or from other persons, and entering into any contract, engagement or undertaking with them for the withdrawal of such money or property at any time with any increase thereof, or for the payment to them or to any person of any sum of money at any time, either fixed or uncertain.
These institutions render a valuable service to busi ness by broadening the market for good securities which are not widely and favorably known, for one reason or another. Today, a large percentage of
the business is in city real estate mortgages; twenty five years ago much of it was in farm mortgages. Mortgages on western farm lands were bought up, de posited with a trustee and bonds were issued against them. The panics of 1893 and 1907 killed many of the larger companies doing this kind of business. Some of the western states, notably Kansas, were fairly plastered with mortgages and the farmers were unable to pay.
A new and promising field is now opening to these corporations. Securities of foreign governments and of alien corporations have never been well received in America. We have been too busy with our own rail road and industrial expansion to stop and study for eign securities; but the European war enabled us to cancel a large part of our foreign indebtedness, and we have even been loaning enormous sums abroad. Perhaps the quickest and most economical way of sell ing foreign securities in America is to bring them into our financial centers just as we brought in farm mortgages a quarter of a century ago, deposit them with trustees and issue against them the securities of American corporations for sale to the public. If the issuing house is strong and favorably known its se curities will sell where the foreign collateral would not be looked at. It promises a profitable field for invest ing American capital, and the corporations going into the business should earn legitimately a handsome re turn. This is a type of financial banking.
9. Industrial banks.—The need for these "poor man's". banks is told vividly in a story which appeared in the columns of the New York Evening Post. A fairly high-salaried clerk, earning $2,400 a year, was suddenly called upon to raise $400 to prevent his son in-law from going to prison. His large family had made it impossible for him to save, so he had to go to one of the "loan sharks" who was accustomed to advertise loans at six per cent, but really charged from 100 to as high as 1,000 per cent. During four years he paid back more than $2,000 on his original loan, and at the end of that time, according to the money lenders, he still owed $1,700. Fifty-five years old, he was breaking under the strain when he was rescued by his employer in cooperation with the Division of Re medial Loans of the Russell Sage Foundation.