946 READINGS IN RURAL ECONOMICS 



attention was called to the fact that at the present time 

 $500,000,000 is available for farm-mortgage loans. The writer, 

 however, does not share the belief that the making of real- 

 estate loans by national banks is in accordance with the prin- 

 ciples of sound banking, and even if it were, he does not 

 believe that such loaning would prove profitable to the banks 

 or convenient for the farmers. 



A bank's primary function is to make possible the employ- 

 ment of capital temporarily out of use. This it does by estab- 

 lishing a reservoir of liquid funds known as deposits. It should 

 not act as a primary agent of investment, even to the extent 

 involved in making five-year mortgage loans. The resources of a 

 bank should be kept so liquid that they will be immediately avail- 

 able in times of stress. The time deposits of even the country 

 national bank do not bear the same relation to the bank as the 

 savings deposits bear to the industrial savings bank. The restric- 

 tion of the amount to be loaned to 33^^ per cent of the time 

 deposits and of the term to five years is an admission of this 

 fact. Yet it is difficult to see why this five-year restriction was 

 made, since from the standpoint of a bank a five-year loan is no 

 more liquid than a ten-year loan. 



Further, in meeting the demands of farmers for personal loans, 

 the bulk of which run for a period of from six months to a year 

 and are therefore not short-time loans in a strict sense, national 

 banks are subjected to as great a strain as they should be called 

 upon to bear. 



The banks are not likely to find it profitable to make the per- 

 mitted mortgage loans, since the rate could not be higher than 

 that on commercial loans ; while farmers can secure loans locally 

 from individuals or from outside sources at lower rates. In 

 Illinois or Minnesota, for example, farmers to whom a national 

 bank would care to loan on mortgage can secure loans on their 

 farms at a rate below that which the bank charges on their per- 

 sonal loans and even lower than that paid the bank by the local 

 merchant. Even if it be granted that under certain conditions it 

 would be to the bank's advantage to make the mortgage loans, 

 a five-year term would be too short if the loan was required for 



