Among the customers of the joint-stock credit banks figure chiefly members of the commercial and industrial classes, who obtain from these banks both their long- and short-term credit, and in the second place holders of medium-sized and large agricultural property, who apply to them for short-term "operation" credit. The credit demands of the members of the small-farm class and of the small independent producers are generally met by the co-operative credit societies.
LAND CREDIT INSTITUTIONS
As regards the credit on landed property there is hardly a country with an organisation as perfect as Germany. The beginning of this organisation dates back about one hundred and thirty years. The Prussian State had emerged from the storms of the Seven Years' War (1756-1763) as a recognised European power, but the sacrifices of the years of war had completely exhausted the country.
As the landed nobility was then the principal support of the State and was so regarded by the Government, it became a matter of public interest to relieve the financial distress of the landed proprietors by enabling them to pay off systematically their mortgage debts.
The efforts in this direction, in which the Prussian King, Frederick the Great, personally took an active part, led to the creation of the land-mortgage associations (Landschaften), which must be considered the first important step toward the organisation of land credit.
"Landschaften" are associations endowed with the rights of a corporation and operating under state control. Their boards of directors have the attributes of official authority. They are autonomous institutions within the limits set by the state supervision.
The Landschaften obtain the funds for the granting of credit through the issues of letters of mortgage or mortgage bonds—i. e., as a rule, the borrowers receive the loan in the shape of mortgage bonds of the association, and it is left to them to negotiate these bonds on the stock exchange. At first the letters of mortgage were made out on a certain estate (estate debentures). But as the purchaser of such letters of mortgage was forced to keep watch over the condition and management of the mortgaged estate—even though the association itself maintained permanent control of the debtor—the sphere of circulation and the ease with which these bonds could be sold were naturally limited.
It was only when the issue of corporate mortgage bonds was started, the security of which was guaranteed either by the entire mortgage claims of the association or the collective responsibility of their members, and when these bonds were given a large market through their admission to exchange transactions, that the highest degree of mobility was reached.
It was mainly to meet the needs of credit on urban real estate that mortgage banks (Hypothekenbanken) were created, and thus a special organisation of city real estate credit was formed. The greater number of the mortgage banks now in existence was founded during the decade 1862 to 1872; practically all the others were founded during the building boom of 1894-1896. Most of the mortgage banks cater exclusively to the demand for real estate credit; some others combine this specialty with other lines of banking.
While the land-mortgage associations are based on the principle of co-operation and do not pursue a profit-making policy, the mortgage banks have been founded as joint-stock companies. The capital stock serves as working capital as well as guaranty fund.