A NATIONAL PLAN FOR AMERICAN FORESTRY 1133 



a more liberal capitalization by share capital than is provided for the 

 home loan banks or Federal land banks. It would provide a greater 

 margin of safety for bonds issued and greater facility for building up 

 and protecting adequate reserves. 



3. Each bank should have a board of directors of seven members. 

 These would be in part elected by the stockholders and in part 

 appointed by the Federal Farm Loan Board, 6 as in the case of the 

 Federal land banks. 



4. Suitable central organization of the several banks should be 

 provided to permit cooperative action and mutual aid, including is- 

 suance of bonds and debentures under joint liability of all banks. 



5. Each borrower should be required to purchase stock in his 

 regional bank to the extent of 5 percent of his loan. Simultaneously 

 he should sign an assignable option for the sale of the stock at par 

 value without restriction on the time of such sale. When in the 

 course of time all the stock of any bank had been taken up, op- 

 tions on the oldest stock outstanding should be utilized to transfer the 

 stock to the current borrowers. Stock should be transferable to a 

 purchaser of the forest property involved, and might be made trans- 

 ferable without restriction after the loan it accompanied had been 

 paid. 



6. Banks might begin doing business when 40 percent of the capital 

 was paid in. The United States Treasury would be directed to 

 purchase stock to this extent. 



7. Dividends on stock should be limited to 5 percent cumulative. 

 Dividends paid in any year should not exceed the earnings of that 

 year after suitable transfers to reserve accounts. 



8. Banks should have authority to issue long-term bonds based on 

 mortgage loans as collateral and with joint liability of the banks. In 

 order to take advantage of conditions under which short-term obliga- 

 tions sell at lower interest rates, authority should be granted to issue 

 short-term debentures not to exceed a reasonable percentage of the 

 paid-in capital, with due regard to current income from interest and 

 amortization of outstanding loans. 



9. Banks should be authorized to make first-mortgage loans only 

 on forest properties organized for operation on a sustained-yield basis 

 or being subjected to measures necessary to prepare for such opera- 

 tion. Suitable penalties should be provided for violation of these 

 provisions. No loan or loans to a single concern should exceed 10 



Eercent of the paid-in capital of the issuing bank, "single concern" 

 eing interpreted to include with a parent corporation all subsidiary 

 corporations or corporations with interlocking directorates. No loan 

 should exceed 30 percent of the appraised value of the property. 

 Net income should be duly taken into consideration in appraisals. 

 Interest rates should not exceed by more than 2 percent the rate 

 borne by the last previous issue of long-term forest loan bonds. 

 First-mortgage loans should provide for amortization within 30 to 50 

 years. If made within 5 years, payment should be 1 percent above 

 par to cover costs incident to placing the loan. 



10. Where bank officials consider such action desirable, second- 

 mortgage loans might be granted on properties on which the bank 

 holds the first mortgage. Such loans should not exceed an additional 



Fifteenth Annual Report, p. 62 



