FARM FINANCE 135 



STABILITY OF THE SYSTEM. 



If a system of mortgage rural banks be established, 

 and an act of Congress, supplemented by an act of the 

 state legislatures, strictly limits the field of its opera- 

 tions, there should be no possibility under such estab- 

 lishments of wrecking the bank or of its going into the 

 hands of a receiver. 



The resources should also bear a definite ratio to the 

 liabilities, and by a large percentage thereof, and the 

 method of checking, by reason of state and national 

 examiners, should be such as to detect any weak spots 

 and strengthen them before they have become danger- 

 ous to the system. 



The commission also calls attention to the fact that 

 it is not necessary that the capital and surplus of the 

 mortgage bank should be entirely invested in these long- 

 time mortgages, but they may be invested in other 

 shorter term securities. The resources of the bank 

 may be, under proper restrictions, safely advanced from 

 time to time in short-term loans at a higher rate of in- 

 terest. The issue of collateral trust bonds secured by 

 large areas of mortgaged territory is a slow process. 

 Pending the completion of such issues, there could be 

 no objection to the investment of the resources of the 

 bank in shorter term notes properly secured. For this 

 reason the land-mortgage bond, based upon the land- 

 mortgage security itself, which can be sold in the open 

 market and thus converted into liquid currency, is an 

 important feature of the operation of banks of this 

 kind. A certain proportion of the capital of these 

 banks, under proper restrictions, should be reserved 

 for just such purposes. In other words, the long-time 

 mortgages themselves may be converted into temporary 



