68 UN^ITED STATES - CREDIT 



§ 5. Modifications under the act of 1916. 



On the seventh of last December Congress passed an Act modifying 

 that of igi6 in several respects with a view to ampUfying its scope. 



Certain of these modifications were proposed by the Federal Reserve 

 Board in its last report. 



The innovations aimed at making the federal reserve system more 

 attractive, that is to say more profitable, to the stockholding banks, and at 

 extending the scope and usefulness of the Federal Reserve Banks. 



In abolishing restrictions on the acceptance by stockholding banks of 

 bills of exchange of home origin which are sufficiently guaranteed the Act 

 has placed within their reach a considerable source of profit, and has at 

 the same time provided a new means of credit to the agricultural, indus- 

 trial and commercial world ; for notes, drafts and bills of exchange secured 

 by agricultural products and other goods and merchandise can be thus 

 discounted. Agricultural paper maturing in six months at most ma}' be 

 discounted up to an amount equivalent to a percentage of the Federal 

 Bank's assets determined by the Federal Reserve Board. 



Banks in districts having no more than 5,000 inhabitants are authoriz- 

 ed to act as agents of insurance companies and agents for transactions of 

 land credit, and are thus enabled to undertake two kinds of lucrative 

 business. 



As regards land credit, the article of the earlier Act to which we have 

 referred is modified as follows : " Any national banking association not 

 situated in a central reserve city may make loans secured by improved 

 and unencumbered farm land situated within its Federal reserv^e district 

 or within a radius of one hundred miles of the place in which such bank 

 is located, irrespective of district lines, and may also make loans secured 

 by improved and unencumbered real estate within one hundred miles of 

 the place in which such bank is located, irrespective of district lines ; but 

 no loan made upon the security of such farm land shall be made for a longer 

 time than five A^ears, and no loan made upon the security of such real 

 estate as distinguished from farm land f.hall be made for a longer time 

 than one year, nor shall the amount of any such loan, whether upon such 

 farm land or upon such reale estate, exceed fifty per centum of the actual 

 value of the property offered as security. Any such bank may make such 

 loans, whether secured by such farm land or such real estate, in an aggre- 

 gate sum equal to twenty-five per centum of its capital and surplus or to 

 one third of its time deposits and such banks may continue hereafter as 

 heretofore to receive time deposits and to pay interest on the same". 



• The Act increases the power of the Federal Reserve Banks in that it 

 allows the Federal Reserve Board to authorize " member banks to carry 

 in the Federal reserve banks of their respective districts any portion of 

 the reserves " previously required to be held in their own vaults ; and in 

 that it increases the faciUties of member banks for short term credit, secur- 

 ed by bills not actually discounted. Anj- national banking association 



