88 UNITED STATES - CREDIT 



working capital in mortgage loans for periods not exceeding five years, 

 against which, however, they would not be allowed to issue bonds. 



Further, each bank would have power to buy and sell its own bonds as 

 well as those of any other national mortgage bank, provided always that 

 at any time not more than 50 per cent, of its capital and surplus was 

 invested in such bonds or in short term mortgages. 



The provision that a bank may buy in and become a temporary 

 holder of its own bonds is regarded by the Commissioners as of the utmost 

 importance as it enables the bank to maintain a steady market for its bonds 

 and at the same time earn a legitimate profit by opportune dealings in 

 them. 



The amount of deposits which could be accepted by the banks is limited 

 to 50 per cent, of each bank's capital and accumulated reserve on the grounds, 

 as stated by the Commissioners, that the banks are not intended to com- 

 pete with commercial banks and that the holding of deposits for which there 

 may be a sudden demand is likely to endanger the safely of an institution 

 which is engaged principally in making loans for long periods. 



The limitation, however, does not apply to deposits of postal savings 

 funds (or other Federal deposits), or to deposits of ,State funds. A bank must 

 if required, accept postal saving funds up to 50 per cent, of its capital and 

 reserves, but may accept such deposits, as well as deposits of State funds, 

 to an unHmited extent. 



Postal savings funds can only be invested in first mortgage loans on 

 farm lands, and the funds held on deposit for the vState in which the bank 

 operates can only be invested as provided by the laws of that State. 



It is probable that the Commission intend that a bank shall be restrict- 

 ed to accepting deposits on behalf of the State in which it is situated, al- 

 though in more than one section of the Bill, where " State funds" are re- 

 ferred to, the restriction is not explicit. 



The Federal Fiduciary Agent who would be jointly responsible with 

 the bank for all mortgages and deeds of trust held by the bank, and who 

 would in addition certify to every bond issued, is the representative both 

 of the bank with which he is acting and of the Federal Bureau of Farm Land 

 Banks. He would be nominated by the Commissioner of Farm Land Banks, 

 but his salary would be paid by the bank and it is expressly stipulated that 

 he must not be objectionable to the directors of the bank. He would ap- 

 parently have no security of tenure and it has been urged that his position, 

 in view of the fact that he is intended to represent the controlling authority, 

 would hardly be sufficiently independent. 



The balance of the capital and surplus of any bank ma}' be invested 

 in interest-bearing securities approved by the Commissioner of Farm Land 

 Banks. 



The Bill would authorize the establishment of land mortgage banks on 

 a co-operative basis and grant such banks the privilege of transacting a gen- 

 eral banking business with their own members only, in addition to the land 

 mortgage business defined in the Bill. The special provisions affecting 

 co-operative mortgage banks are as follows: (i) the holding of shares by 



