The "loan shark" is being fought in many states thru legislation, employers' organizations and more particularly thru industrial banks which make loans at a fair rate of interest and help the borrower without pauperizing him. The Morris Banks and the Re medial Loan Societies are doing notable work. The associated societies, during the year loaned over $28,000,000, the average loan being around $33. Dividends on stock ran as high as ten per cent in one case. Only three of the member so cieties were located in the cities of less than 100,000 population.
Wide awake employers will not long neglect to pro vide some protection for their employes, for no em ploye is efficient when struggling in the grip of a "loan shark." 10. Land banks.—Farmers find it impossible to get adequate accommodations from ordinary banks. They need funds for several months if they want to finance crops; for several years, if they borrow to make permanent improvements, such as drainage and buildings. For crop financing, they can sometimes borrow on short time notes from commercial banks with a tacit understanding that the notes will be re newed. Often, they are carried by storekeepers, im plement dealers and purchasers of farm products. Loans for periods of from five to thirty years, such as are needed for making permanent improvements, cannot be had from the commercial banks. The sav ings banks, insurance companies and other financial institutions which have funds available for long-time loans are not in close touch with the farmers, and therefore cannot take care of them.
European countries solved the problem long ago by establishing a special type of farm loan banks. Mortgages on a number of farms are pooled and funds are borrowed to be loaned out again to indi vidual farmers. There are certain variations between the several plans in use but in all of them the key to the problem is the substitution of the credit of a group for that of the individual.
An attempt to adopt the European plan to condi tions in the United States is made in the Federal Farm Loan Act, which was approved July 17, 1916. Only the general outline of the law need be given here as the system has not yet had an opportunity to show what it can do. There are twelve Federal land banks under the supervision of the Federal Farm Loan Board at Washington. Each bank must have a capi tal of at least $750,000. The land banks are agencies thru which credit is granted to cooperative farm and land associations, whose members are land owners or prospective purchasers of land. Funds for the loans
are obtained from paid in capital and from bond is sues secured by mortgages. The bonds pay five per cent and the amount issued by any land bank may not exceed twenty times its capital. The loans are to be made only on an adequate value as a basis and may run not less than five nor more than forty years. They are gradually amortized by equal annual pay ments which include a part of the principal as well as the interest.
The advantages of the Act will be greatest in those states where capital is relatively scarce and where farmers have been compelled to pay excessive interest rates for funds.
11. Safe deposit company.—The New York State law defines a safe deposit company as follows: A safe deposit company is a corporation organized for the purpose of receiving upon deposit as bailee, for safekeep ing and storage, jewelry, plate; money, specie, bullion, stocks, bonds, securities and valuable papers of any kind and other valuable personal property and guaranteeing their safety upon such terms and for such compensation as may be agreed upon by the company and the respective bailors thereof, and of renting vaults and safes and other re ceptacles for the purpose of safekeeping and storage.
A safe deposit company is a valuable adjunct to the business of a trust company, and if it is properly lo cated and managed may be made a valuable adver tisement. Very frequently, the vaults of the trust company are rented from the safe deposit company. Many banks in small cities and towns are beginning to realize the benefit that may be derived from leasing vault space and, when erecting new buildings or re modeling, they are building much larger vaults than their present needs require and equipping a portion of the vault space with boxes to be leased to their cus tomers and others. A bank often nets as much as 15 per cent on its vault investment without any dis turbance to its own business.
12. Source of authority.—In America, banking was, at first, a common law right. No special charter was needed to begin the banking business any more than one is needed now to enter the grocery business. At one time notes were issued and a regular banking business carried on by merchants, bridge and turn pike companies, or by anyone who chose.