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FARM CREDIT ACT OF 1935

FRIDAY, FEBRUARY 1, 1935

HOUSE OF REPRESENTATIVES,
COMMITTEE ON AGRICULTURE,
Washington, D. C.

The committee this day met, at 10:30 a. m., Hon. Marvin Jones (chairman) presiding.

The CHAIRMAN. The committee will come to order, please.

We have representatives of the Farm Credit Administration with us this morning for consideration of H. R. 4512.

Governor Myers, we will be glad to hear any explanations you may have to offer in connection with this proposed bill.

(The bill referred to is printed in the record as follows:)

[H. R. 4512, 74th Cong., 1st sess.]

A BILL To amend the Emergency Farm Mortgage Act of 1933, to amend the Federal Farm Loan Act, to amend the Agricultural Marketing Act, and to amend the Farm Credit Act of 1933, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Farm Credit Act of 1935."

SEC. 2. (a) Section 32 of the Emergency Farm Mortgage Act of 1933, as amended (U. S. C., Supp. VII, title 12, sec. 1016), is further amended by striking out of the third sentence the following: "and made for the purpose of reducing and refinancing an existing mortgage."

(b) Such section 32, as amended, is further amended by striking out the fifth sentence and inserting in lieu thereof the following: "Loans may be made under this section for any of the purposes for which Federal land banks are authorized by law to make loans, and for the following additional purpose, and none other: Refinancing, either in connection with proceedings under chapter VIII of the Bankruptcy Act of July 1, 1898, as amended, or otherwise, any indebtedness, secured or unsecured, of the farmer, or which is secured by a lien on all or any part of the farm property accepted as security for the loan." (c) Such section 32, as amended, is further amended by striking out the seventh sentence and inserting in lieu thereof the following: "As used in this section, the term 'farmer' means any individual who is at the time, or shortly to become, bona fide engaged in farming operations, either personally or through an agent or tenant, or the principal part of whose income is derived from farming operations, and includes a personal representative of a deceased farmer."

(d) Such section 32, as amended, is further amended by striking out the eighth and ninth sentences and inserting in lieu thereof the following: "Until February 1, 1940, the Land Bank Commissioner shall, in his name, make loans under this section on behalf of the Federal Farm Mortgage Corporation, either in cash or in bonds of the corporation at his election, or, at the option of the borrower, in consolidated farm loan bonds; but no such loans shall be made by him after February 1, 1940, except for the purpose of refinancing loans previously made by him under this section. As much as may be necessary of the assets of the corporation, including the bonds (and proceeds thereof) issued under section 4 of the Federal Farm Mortgage Corporation Act, may be used for the purposes of this section."

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(e) Such section 32, as amended, is further amended by inserting at the end thereof the following: "Any Federal land bank, when duly authorized by the Land Bank Commissioner and the Federal Farm Mortgage Corporation, shall have the power to execute any instrument relating to any mortgage taken to secure a loan made or to be made under this section, or relating to any property included in any such mortgage, or relating to any property acquired by the Land Bank Commissioner and/or the Federal Farm Mortgage Corporation. Any such instrument heretofore or hereafter executed on behalf of the Land Bank Commissioner and/or the Federal Farm Mortgage Corporation by a Federal land bank, through its duly authorized officers, shall be conclusively presumed to have been duly authorized by the Land Bank Commissioner and the Federal Farm Mortgage Corporation."

SEC. 3. The third sentence of paragraph "Twelfth" of section 12 of the Federal Farm Loan Act, as amended (U. S. C., Supp. VII, title 12, sec. 771), is amended by striking out that portion of the sentence following the semicolon and inserting in lieu thereof the following: "but in any case in which the Land Bank Commissioner finds that the amount of interest payable by such bank during any quarter subsequent to December 31, 1934, has been reduced by reason of the refinancing of bonds subsequent to June 30, 1934, the amount of the reduction so found shall be deducted from the amount payable to such bank for such quarter under this paragraph.”

SEC. 4. The fourth sentence of section 24 of the Federal Farm Loan Act, as amended (U. S. C., Supp. VII, title 12, sec. 913), is further amended by striking out the period at the end thereof and inserting in lieu thereof a colon and the following: “Provided, That the declaration and payment of any such dividend shall be subject to the approval of the Land Bank Commissioner.” SEC. 5. (a) Paragraph (1) of subsection (a) of section 202 of the Federal Farm Loan Act, as amended (U. S. C., Supp. VII, title 12, sec. 1031), is further amended by striking out that portion of the paragraph which follows the second semicolon and inserting in lieu thereof the following: “"and to discount for, or purchase from, any production credit association or bank for cooperatives organized under the Farm Credit Act of 1933, or any production credit association in which a Production Credit Corporation organized under such Act holds stock, with its indorsement, any note, draft, bill of exchange, debenture, or other such obligation presented by such association or bank, and to make loans and advances direct to any such association or bank secured by such collateral as may be approved by the Governor of the Farm Credit Administration."

(b) Paragraph (3) of subsection (a) of such section 202, as amended, is further amended by striking out the period at the end thereof and inserting in lieu thereof a comma and the following: "at such rates of commission as may be approved by the Governor of the Farm Credit Administration."

(c) Subsection (d) of such section 202, as amended (U. S. C., Supp. VII, title 12, sec. 1034), is hereby repealed.

SEC. 6. (a) Subsection (a) of section 203 of the Federal Farm Loan Act (U. S. C.. title 12, sec. 1041), is amended by striking out the proviso and inserting in lieu thereof the following: "Provided, That the aggregate amount of the outstanding debentures and similar obligations issued individually by any Federal intermediate credit bank, together with the amount of outstanding consolidated debentures issued for its benefit and account, shall not exceed ten times the surplus and paid-in capital of such bank."

(b) Such section 203 (U. S. C., title 12, secs. 1041-1043) is further amended by adding at the end thereof the following new subsections:

"(d) Whenever it shall appear desirable to issue consolidated debentures of the twelve Federal intermediate credit banks and to sell them through a common selling agency, and the Federal intermediate credit banks shall, by resolutions, consent to the same, the banks may issue and sell said debentures subject to the provisions of this section and the provisions of section 21 of title I of this Act, insofar as applicable. As used in this Act, the term 'debentures' includes such consolidated debentures."

"(e) All debentures issued by Federal intermediate credit banks shall be lawful investments, and may be accepted as security for all fiduciary, trust, and public funds, the investment or deposit of which shall be under the authority or control of the United States or of any officer or officers thereof." SEC. 7. Subsection (a) of section 204 of the Federal Farm Loan Act, as amended (U. S. C., Supp. VII, title 12, sec. 1051), is further amended to as follows:

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"(a) Any Federal intermediate credit bank may, with the approval of the Intermediate Credit Commissioner, from time to time establish rates of discount and interest which, except with the approval of the Governor of the Farm Credit Administration, shall not exceed by more than 1 per centum per annum the rate borne by the last preceding issue of debentures which it issued or in which it participated. Any Federal intermediate credit bank may be required by the Governor of the Farm Credit Administration to acquire, upon such terms as he may approve, loans and/or discounts of any other Federal intermediate credit bank,"

SEC. 8. Section 208 of the Federal Farm Loan Act (U. S. C., title 12, secs. 1091-1094) is amended by adding at the end thereof the following new subsection:

"(e) The executive departments, boards, commissions, and independent establishments of the Government, the Reconstruction Finance Corporation, the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Federal Reserve banks are severally authorized, under such conditions as they. may prescribe, to make available to any Federal intermediate credit bank, in confidence, upon the request of the Governor of the Farm Credit Administration, such reports, records, or other information as they may have available relating to the condition of any institution to which a Federal intermediate credit bank has made, or contemplates making, loans, or which it is using, or contemplates using, as a custodian of securites or other credit instruments, or as a depositary."

SEC. 9. Paragraph (2) of subsection (a) of section 7 of the Agricultural Marketing Act, as amended (U. S. C., Supp. VII, title 12, sec. 1141e), is further amended to read as follows:

"(2) the construction or acquisition by purchase or lease, or refinancing the cost of such construction or acquisition, of physical facilities."

SEC. 10. Paragraph (1) of subsection (c) of section 7 of the Agricultural Marketing Act, as amended (U. S. C., Supp. VII, title 12, sec. 1141e), is further amended to read as follows:

"(1) No loan shall be made in an amount in excess of 60 per centum of the appraised value of the security therefor."

SEC. 11. Subsection (a) of section 8 of the Agricultural Marketing Act, as amended (U. S. C., Supp. VII, title 12, sec. 1141f), is further amended to read as follows:

"(a) Loans to any cooperative association shall bear such rates of interest as the Governor of the Farm Credit Administration shall from time to time determine to be necessary for the needs of the lending agencies and shall by regulation prescribe (but in no case shall the rate of interest exceed 6 per centum per annum on the unpaid principal): Provided, however, That the rate of interest on any loan made under the provisions of section 7 (a) (1) hereof, other than upon the security of commodities, shall conform as nearly as may be practicable to a rate of 1 per centum in excess of the prevailing interest rate paid by production credit associations to the Federal intermediate credit bank of the land-bank district in which the principal business office of the borrower is located; and that the rate of interest on any loan made under the provisions of section 7 (a) (2) hereof shall conform as nearly as may be practicable to the prevailing rate on mortgage loans made to members of national farm loan associations."

SEC. 12. Subsection (a) of section 15 of the Agricultural Marketing Act, as amended, (U. S. C., Supp. VII, title 12, sec. 1141j) is further amended to read as follows:

"(a) As used in this Act, the term 'cooperative association' means any association in which farmers act together in processing, preparing for market, handling, and/or marketing the farm products of persons so engaged, and also means any association in which farmers act together in purchasing, testing, grading, processing, distributing, and/or furnishing farm supplies and/or farm business services: Provided, however, That such associations are operated for the mutual benefit of the members thereof as such producers or purchasers and conform to one or both of the following requirements:

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'Firs'. That no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein; and

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Second. That the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum.

"And in any case to the following:

"Third. That the association shall not deal in farm products, farm supplies, and farm business services with or for nonmembers in an amount greater in value than the total amount of such business transacted by it with or for members. All business transacted by any cooperative association for or on behalf of the United States or any agency or instrumentality thereof shall be disregarded in determining the volume of member and nonmember business transacted by such association."

SEC. 13. Section 34 of the Farm Credit Act of 1933 is amended to read as follows:

"SEC. 34. Subject to such terms and conditions as may be prescribed by the chairman of its board of directors, the Central Bank is authorized: (a) to make loans to cooperative associations, as defined in the Agricultural Marketing Act, as amended, for any of the purposes and subject to the conditions and limitations set forth in such Act, as amended; (b) to make loans (by way of discount or otherwise) to banks for cooperatives organized under section 2 of this Act; (c) to buy from, and sell to, any such bank or any Federal intermediate credit bank any note, draft, bill of exchange, debenture, or other obligation; and (d) to borrow from, and discount or rediscount paper with, any and all such banks."

SEC. 14. Section 41 of the Farm Credit Act of 1933 (U. S. C., Supp. VII, title 12, sec. 1134c) is amended to read as follows:

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SEC. 41. Subject to such terms and conditions as may be prescribed by the Governor, the banks for cooperatives are authorized: (a) to make loans to cooperative associations as defined in the Agricultural Marketing Act, as amended, for any of the purposes and subject to the conditions and limitations set forth in such act, as amended; (b) to make loans (by way of discount or otherwise) to any bank organized under this Act; (c) to buy from, and sell to, any such bank or any Federal intermediate credit bank any note, draft, bill of exchange, debenture, or other obligation; and (d) to borrow from, and discount or rediscount paper with, any and all such banks."

SEC. 15. (a) The first sentence of subsection (a) of section 35 of the Farm Credit Act of 1933 (U. S. C., Supp. VII, title, sec. 1134k) is amended by striking out the period at the end and inserting in lieu thereof a comma and the following: "except that, in connection with any loan made on the security of commodities, the borrower shall be required to own, at the time the loan is made, only such amount of stock as may be prescribed by rules and regulations of the Governor."

(b) Subsection (a) of such section 35 is further amended by striking out the second sentence and inserting in lieu thereof the following: “Upon discharge of the loan, stock held by the borrowing association may be, and upon the concurrent or subsequent request of the borrowing association shall be, retired and canceled, and the association shall be paid therefor an amount equal to the amount paid for such stock or loaned to subscribe therefor, as the case may be, minus the pro rata impairment, if any, of capital and guaranty fund of the central bank, as determined by the chairman of the board of the central bank. (c) Such section 35 is further amended by adding at the end thereof the following new subsection:

"(c) In any case where the debt of a borrower to the central bank is in default, the bank may, in accordance with rules and regulations prescribed by the Governor, retire and cancel all or a part of the stock of the defaulting borrower at the fair book value thereof (not exceeding par), in total or partial liquidation of the debt, as the case may be."

SEC. 16. Section 66 of the Farm Credit Act of 1933 (U. S. C., Supp. VII, title 12, sec. 1138f) is amended by inserting after the word "paid "in the first sentence thereof the following: "by any such bank, corporation, or association."

SEC. 17. (a) The first sentence of subsection (a) of section 30 of the Emergency Farm Mortgage Act of 1933 is amended by striking out the words "two years" and inserting in lieu thereof the words "four years.”

(b) The fourth sentence of subsection (b) of such section 30 is amended: (1) By striking out the words "occurring more than sixty days after the date of enactment of this Act", and

(2) by striking out the words "a period of two years from the date of enactment of this Act" and inserting in lieu thereof the following: "A period of two years from the date of the enactment of the Farm Credit Act of 1935."

SEC. 18. (a) The first sentence of subsection (a) of section 31 of the Emergency Farm Mortgage Act of 1933 is amended by striking out the words

"for two years from the date of the enactment of this Act" and inserting in lieu thereof a comma and the following: "until May 13, 1937,".

(b) Subsection (b) of such section 31 is amended by striking out the words "such two-year period" and inserting in lieu thereof the following: "the period of postponement."

SEC. 19. (a) If any provision of this Act, or the application thereof to any person or circumstances, is held invalid, the remainder of the Act, and the application of such provision to other persons or circumstances, shall not be affected thereby.

(b) The right to alter, amend, or repeal this Act is hereby expressly reserved.

STATEMENT OF HON. W. I. MYERS, GOVERNOR, ACCOMPANIED BY SCOTT W. HOVEY, GENERAL COUNSEL, FARM CREDIT ADMINISTRATION, WASHINGTON, D. C.

Mr. MYERS. Mr. Chairman, do you wish me first to call attention to these tables, which I have handed you?

The CHAIRMAN. We shall be glad to have you make any explanation you may care to. You may wait, if you prefer, until after you have made your general statement.

Mr. MYERS. I am at your service, Mr. Chairman.

The CHAIRMAN. Some of the members have not yet arrived, and if you expect to refer to the table from time to time it might be just as well to proceed with your general statement. However, copies are available to the members. You may go ahead with the charts, if you prefer.

Mr. MYERS. I will leave one for the record.

(The tables above referred to are in the committee files.)

Mr. MYERS. First, table 1: The purpose of these figures is to present to you a brief statement of what has been accomplished under the emergency refinancing program.

Table 1 shows the number and amount of loans closed from May 1, 1933, through December 31, 1934, by the Federal land banks and Land Bank Commissioner. The total of both types of loans is 575,840, for a total of $1,494,454.

Table 2 shows the number and amount of Federal land bank and Land Bank Commissioner loans outstanding December 31, 1934; and that the total number of Federal land bank and Land Bank Commissioner loans at that time was 953,643, for slightly more than two and one-half billion dollars, $2,513,240. The division between the two classes of loans would be about $1,900,000,000 of Land Bank Ioans, and slightly over $600,000,000 of Land Bank Commissioner loans.

Table 3 shows the purposes for which proceeds of Federal land bank and Land Bank Commissioner loans were used during this period of about 20 months, from May 1, 1933 through December 31, 1934. Over in the right column of the table are shown the percentages used in refinancing mortgage debt, short-term debt, and taxes. The total of those three items is 89.7 percent, practically 90 percent.

Of the remainder, 2.7 percent was used for working capital; 2.9 percent of the total went for National Farm Loan Association stock; 2.7 percent was used for purchase, redemption or repurchase of land; 1.2 percent was used for loan fees; and 0.8 of one percent was loaned for equipment, buildings, and improvements. In other

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