The Farm Credit Act of 1953 directed the new Federal Farm Credit Board to develop plans for speeding the retirement of Government capital in the banks. In line with this policy the Federal Farm Credit Board recom

mended to the 1955 session of Congress a plan by which cooperatives can gradually increase their investments in the capital stock of the banks for cooperatives. This plan was adopted and became law in the form substantially as recommended by the Board.

In addition to using their capital the banks obtain loan funds by selling consolidated debentures to the investing public, by loans from commercial banks, and by discounting loans with the Federal intermediate credit banks.

Three distinct types of loans may be made to farmer cooperative associations which meet the eligibility and credit standards of the banks. They are as follows:

1. Commodity loans-secured by a first lien on staple farm products or supplies.

2. Operating capital loans-used to supplement the cooperatives' own capital funds.

3. Facility loans-used to finance or refinance the acquisition of land, buildings, and equipment used by the association.

To be eligible to borrow from a bank for cooperatives, a cooperative must be an association in which farmers act together in (1) processing, preparing for market, handling or marketing farm grading, processing, distributing, or products; (2) purchasing, testing, furnishing farm supplies; or (3) furnishing farm business services.

Associations performing a combination of two or more of these services are also eligible.

It is also necessary that an association be operated for the mutual benefit of its members and conduct as much or more business with members as with nonmembers. To be eligible to borrow, a cooperative must provide that no member may have more than one vote, or else dividends on its stock or membership capital must be limited to 8 percent a year. A further requirement is that at least 90 percent of the voting stock of a capital-stock cooperative must be held by either producermembers or by associations owned and controlled by producers.

Losses and estimated losses on the $6.8 billion of credit extended by the banks for cooperatives since the banks were organized in 1933 have amounted to one-eighth of 1 percent.

Intermediate Credit Banks

While wholly owned by the Federal Government, the 12 Federal intermediate credit banks perform an important service for the Cooperative Farm Credit System.

These banks are wholesalers of credit. They tap investment funds in the Nation's financial centers for use in farming communities throughout the country. The intermediate credit banks do this by selling debentures, backed chiefly by the notes of farmers, stockmen, and their cooperatives.

The notes of farmers and their cooperatives used as security for these debentures are the notes given in connection with loans made by production credit associations, livestock loan companies, agricultural credit corporations, commercial banks, and banks for cooperatives that have been discounted by the intermediate credit banks.

Over their 32-year period of operation, the intermediate credit banks have extended credit totaling $24 billion. The banks have built up reserves and earned surplus accounts of nearly $50 million and paid the Federal Government over $9 million in franchise

taxes.

Farmers use operating loans from the production credit associations for all types of farm expenses. This farmer is getting ready to apply liquid nitrogen to the soil.

As in the case of the production credit corporations and banks for cooperatives, Congress in the Farm Credit Act of 1953 asked the Federal Farm Credit Board to submit a plan for retiring the Government capital in the Federal intermediate credit banks. Such a plan is in the process of development.

ARMERS and stockmen through their marketing and farm supply cooperatives have capitalized numerous livestock loan companies and agricultural credit corporations as subsidiaries of their cooperatives. About 25 are currently active. Some of these were organized in the period of 192333 to make loans to farmers and stockmen with funds obtained by discounting farmers' notes with the intermediate credit banks.

About a dozen of these loan or credit companies are affiliated with livestock marketing cooperatives at such widely scattered points as San

Francisco in the West, Chicago in the North, and Fort Worth in the South. Six of these organizations are affiliated with the National Feeder and Finance Corp. This corporation is a subsidiary of the National Livestock Producers Association at Chicago.37

Other livestock credit companies are affiliated with the terminal marketing agencies. Farmers borrow from these corporations chiefly to finance cattle on the range or in the feed lots in the Midwest. Some of them, however, also borrow to finance range sheep or to feed lambs.

37

See page 85.

Some of the other subsidiary credit corporations from which farmers borrow to finance their farm operations are affiliated with specialized market

ing associations such as apple and potato marketing cooperatives. Others are subsidiaries of cooperatives purchasing farm supplies for farmers.

ROUPS of people with common

interests may form credit unions to cooperate in accumulating their savings and in making loans at reasonable rates of interest to their own members.

According to the Credit Union National Association at Madison, Wis., that people living in rural communities own and operate 1,080 credit unions. In most cases these credit unions are not restricted to farmers but include as members anyone who lives in the community.

Because rural credit unions are smaller than those organized by people in industrial areas, it is estimated that approximately 150,000 people are members of credit unions in rural communities. In some cases members of farm organizations or farmer cooperatives have organized rural credit unions such as in the case of the Indiana Farm Bureau and several dairy cooperatives. Other credit unions have been organized to serve the employees of various types of farmer cooperatives. Of the

total rural credit unions, members or employees of cooperatives make up 288 and 219 are affiliated with general farm organizations.

The first credit unions were organized in Massachusetts under State legislation passed in 1909. The Credit Union National Extension Bureau was formed in 1921 to acquaint people with the advantages and possibilities of credit unions and to aid in obtaining legislation that made possible the formation of credit unions.

By 1934, 38 States and the District of Columbia had such legislation. As State legislation was provided, more and more credit unions were formed. Some of the State laws were so drawn, however, that it was difficult for credit unions to operate.

As a result of these difficulties Congress passed the Federal Credit Union Act of 1934 authorizing the Federal charter of credit unions by the Governor of the Farm Credit Administration. By Executive Order of the President in 1942, all the functions,

powers, and duties of the Farm Credit Administration relating to Federal credit unions were transferred to the Federal Deposit Insurance Corporation. These functions, powers, and duties were later transferred to the Department of Health, Education, and Welfare.

Membership in a Federal credit union is limited to persons having a common bond of occupation or association such as the employees of the same company or the members of the same church, or to groups within a well-defined neighborhood or rural district.

Each member buys at least one $5

share. Members can add to savings in any amount they desire. They may borrow for a period of not to exceed 3 years for provident or productive purposes. If the savings of members exceed the demand for loans, credit unions may invest in shares of Federal savings and loan associations, in loans to other credit unions, and in securities issued or guaranteed by the Federal Government.

In 1955 there were 15,061 credit unions in the United States. Total membership of all credit unions was estimated at 8,902,000. Their total savings were $2.5 billion and loans totaled $1.9 billion.

207

342562 0-56-14