Some of the specifications of this part of the law are all securities, property, and the evidences of title thereto in which the permanent capital and the deposits are invested are to be segregated and kept separate from all other property and assets of the private banker; depositors have a prior lien on the assets of the private banker, in case of insolvency or suspension of business; and, in addition, every private banker must maintain a reserve of 15 per cent. against deposits in cities of the first class and a reserve of 10 per cent. in any other city, one-tenth of which shall consist of reserve on hand and the remainder may be kept on deposit subject to call with banks approved by the superintendent of banks. These requirements will go far toward preventing the recurrence of such disasters as the Siegel failure.
3. Features relating to co-operative credit. Within the last thirty years the agricultural methods of the State, in harmony with the agricultural methods throughout the United States, have undergone great changes. Scientific farming, improved machinery, and changed market conditions have brought new problems in the field of agricultural credit. To-day agriculture has come to be in a real sense capitalistic and has in consequence laid new requirements on the credit structure of the nation. Moreover, the period of large returns or satisfactory returns from an extensive and rather careless cultivation of the soil, which made possible an ignoring of unit cost, or, at least, brought the farmer to minimize the importance of such cost, has given way, so far as the successful farmer is concerned, to the careful estimates of cost and close calculations of profits on a narrow margin between unit cost and unit selling price.
In the field of cost, the rate at which capital or money may be borrowed is no small factor; and with the high rates prevailing in the United States in comparison with those current in Europe, the borrower in this country who pledges his land or agricultural products as security for a loan finds himself at a disadvantage. To meet this condition cheaper agricultural credit has been strongly urged. Europe furnishes the example in her well-organized land banks and co-operative credit unions. Already Massachusetts has a law authorizing co-operative organizations for furnishing cheaper credit facilities to the agriculturalist, and in Illinois there is a "crédit foncier" which has been in successful operation a number of years. New York State has put itself in line with this growing movement to furnish ample and cheaper credit to the farmer and the purchasers of real estate by putting into the new law provisions for the establishment of a land bank and co-operative credit unions.
Sections 421-438 authorize ten or more savings and loan associations, the aggregate resources of which shall not be less than $5,000,000, to form a Land Bank of the State of New York. This bank can "issue, sell and redeem debenture bonds secured by bonds and first mortgages made to or held by member associations" and "invest its capital and other funds in bonds secured by first mortgages on real estate situated within the territory in which its members are authorized to make loans." The bank is not permitted to do a general deposit business or incur any indebtedness upon notes and bonds in excess of twenty times the amount of its capital. The debenture bonds authorized by the act are to be issued in series of not less than $50,000, and may be called on any interest day at 102-1/2 provided a sixty-day notice is given. Amortization payments upon mortgages which are given as collateral security for the debentures of the land bank shall be sufficient to liquidate the debt in a period not exceeding forty years.
In Article XI the law provides for the establishment of credit unions. A credit union may be organized by any seven or more persons with a share capital the par value of which shall not exceed $25. The objects of the credit union are: (1) to loan money in small amounts on personal security or in larger amounts on endorsed notes at rates not exceeding 1 per cent. per month, inclusive of all charges incident to the making of such loans; (2) to receive the savings of its members in payment of shares on deposit; (3) to borrow money to an amount not to exceed 40 per cent. of its capital; (4) to pay dividends on its share capital. As to the method of making loans, the law prescribes that a credit committee shall pass upon all applications for loans which must be made in writing and must state the purpose for which the loan is desired and the security offered. No loan will be made unless it receives the unanimous approval of the members of the committee present at the meeting, provided always a majority of the committee is present.
With the land bank acting as a central clearing agency for the local savings and loan associations and the organization of many rural credit unions the problem of agricultural credit will be largely solved for New York State. This, however, all hinges on the proper functioning of the land bank and the co-operation of the farmers in the establishment of local credit unions. Agriculturists as a class are slow to adopt new methods and it may be only after prolonged education that all the possibilities of this new legislation will be realized.
FOOTNOTES:
[140] Adapted from George E. Barnett, State Banks and Trust Companies since the Passage of the National Bank-Act, Publications of the National Monetary Commission. Senate Document No. 659, 61st Congress, Second Session.
[141] [At least one savings bank has gained admittance to the Federal Reserve System as a "state" bank.]
[142] According to reports to the National Monetary Commission on April 28, 1909, the loans of all the state banks in the United States on the security of real estate were 20.6 per cent. of their total loans and discounts.