The bonds of each Federal land bank shall be prepared and engraved by the Secretary of the Treasury in registered and unregistered denominations of $25, $50, $100, $500 and $1,000. They shall run for specified minimum and maxi mum periods, subject to retirement at the land bank's option five years after date, and be payable at par in gold or lawful money with terms prescribed and with interest fixed by the Federal Farm Loan Board, at a rate not ex ceeding 5 per cent per annum, for which semi annual coupons shall be attached. The bonds may be issued only upon the authority of said board in series of $50,000 or more; and each shall contain on its face a certificate signed by the farm loan commissioner to the effect that it is issued and secured according to law. Their security shall he at least equal to them in amount and consist either of cash, United States bonds or farm mortgages, approved by the appraisers and trusteed with the registrar of the district. The bonds and any mortgages executed to the land banks are instrumentalities of the United States government. The bonds may be bought and sold by member banks and, with certain restrictions, by the reserve banks of the Federal reserve system, while they are lawful as security for public deposits and as investment for funds in the hands of fiduciaries and trustees acting under Federal authority. So far 29 States have allowed them similar privileges. The borrower may• demand bonds instead of cash for his mortgage.
A Federal land bank shall not obligate itself for outstanding bonds in excess of 20 times its capital stock and surplus, nor buy from any national farm loan association additional mort gages when the unpaid principal of the ones already purchased exceeds 20 times the asso ciation's holdings of its stock. Each Federal land bank must guarantee the bonds of the other Federal land bank, and reimburse the Secretary of the Treasury for that part of his expenses incurred in its behalf. All mort gages executed to it and also its bonds, with their income, are exempt from Federal, State, municipal and local taxation. Its franchises, capital stock, reserve or surplus, and income derived therefrom are likewise exempted, ex cept taxes on real estate. This is also the case with national farm loan associations. Real es tate taken to secure a debt cannot be held for longer than five years except with the approval of the Federal Farm Loan Board.
A reserve, equal to one-fifth of capital stock, must he created by each Federal land bank by semi-annually carrying thereto one-fourth of net earnings until that proportion shall have been reached, and thereafter by setting aside 5 per cent of net earnings for such purpose. Defaults on mortgages must be carried to a suspense account and at the end of two years, unless collected, shall be debited to reserve. Every national farm loan association must use 10 per cent and then 2 per cent of net earnings in the same way, in order to create a reserve equal to one-fifth of its capital. No limit is set for dividends after such allocations have been made. Reserves shall be invested in ac cord with rules prescribed by the Federal Farm Loan Board. In the event of voluntary dissolu tion, the reserves are subject to the disposal of said board, except that of an association be comes the property of its land bank. But no voluntary dissolutions are lawful without the consent of said board. At least one-fourth of the stock of a Federal land bank that is held by its associations must be kept in quick as sets, of which 5 per cent or more shall be United States bonds.
The Federal Farm Loan Board has power, without intervention of the courts, to place any Federal land bank or national farm loan asso ciation in bankruptcy and wind up its affairs, in case of a failure to meet outstanding obliga tions. But no association can be declared in solvent until the total defaults on loans en dorsed by all associations in the district shall amount at least to $150,000, unless such asso ciation shall have been in default for two years.
Any moneys collected by the receiver must be turned over to the United States Treasurer to he held by him subject to the order of said board. Severe penalties are imposed for any offenses committed against the system. Any borrower that knowingly makes a misstatement in his loan application, and any examiner, public or private, that discloses, without authority of the courts or Congress, the name of any borrower is liable to fine and imprisonment.
The act also authorizes the Federal Farm Loan Board to charter joint stock land banks, to be organized with the powers and subject to the requirements above set forth, so far as they are applicable, with a few exceptions. Every Eve stock land bank may have a terri tory of not more than two contiguous States. The capital stock shall be at least $250,000, divided into double-liability shares. The United States shall not be a shareholder nor select any of the directors. The number of these shall be five or more, to be elected annually. The loans may be made without any restriction as to pur pose, use or amount, or as to interest, except the rate shall not exceed by more than 1 per cent the rate borne by the latest series of bonds. Borrowers need not become share holders. The bonds must be distinctive in form and color, but are not to be certified by the farm loan commissioner nor guaranteed by other land banks. The bonds, with the mortgages, have all the other privileges and the governmental quality prescribed for those of the Federal land The Secretary of the Treasury may desig nate either kind of bank to be a depository of public money, except receipts from custom, or employ it as a financial agent of the United States government. But public funds so de shall not be invested in farm mortgages or farm loan bonds. However, the Secretary of the Treasury may deposit any not otherwise appropriated funds with the Federal land banks for their temporary use, provided the aggregate of the sums so deposited shall not exceed $6,000,000 at any one time. Each Federal land bank may issue certificates against sums so received, bearing a rate of interest not to exceed the current rate charged for other government deposits, to be secured by farm loan bonds or other collateral, and redeemable at the Secretary's discretion.
Federal land banks are located at Springfield, Mass., Baltimore, Md., Columbia, S. C., Louis ville, Ky., New Orleans, La., Saint Louis, Mo., Saint Paul, Minn., Omaha, Neb., Wichita, Kan., Houston, Tex., Berkeley, Cal., and Spokane, Wash. The government subscribed for $8,891, 270, and private investors subscribed for the remaining $108,730 of their capital stocks. Up to 1 Aug. 1918 charters had been granted to 3,108 national farm loan associations and $117, 249,000 loaned among 51,000 farmers at and 5 per cent interest per annum for 36 years. The bonds bear 4/and 5 per cent interest per annum and run for 20 years. The board had also chartered five joint stock land banks, and approved four banks organized under State laws as agents of the Federal land banks.
On 18 Jan. 1918 the Federal Farm Loan Act was amended so as to authorize the Secretary of the Treasury to purchase at par $200,000,000 of bonds of the Federal land banks within that year and the next. The amendment also pro vided that, as long as that official holds any of the bonds or the majority of the stock of any Federal land bank, its management shall re main in the hands of the government. Several of the land banks in the west received, as the government's financial agents, the funds set aside by the Secretary of the Treasury to re lieve distress on the Great Plains during the war, and made loans therefrom without real estate security to impoverished farmers. See BANKS AND BANKING — FEDERAL RESERVE SYS TEM.