interest is paid the excess profit or the deficit is shared by the special depositors who have put up the guaranty fund.

210. Safe deposit companies. A safe deposit business is considered an adjunct of any bank, but in some states companies have been formed to do this service chiefly.

211. Trust companies. Nearly all trust companies do a banking business but banks do not perform trust services unless they are especially permitted to do so. The work of trust companies is explained in chapter 16. 212. Banking and trust companies. Nearly all banks do a savings business, the usual requirement being that the savings deposits be kept separate and invested according to the restrictions laid down by law. Most city banks also have safe-deposit boxes for rent. In a great many cases the corporation has the power to do both banking and trust services. Under one roof the customer may have a savings account, a checking account, make a mercantile loan, a loan on mortgage, buy and sell exchange, buy investment securities of all kinds, rent a safe-deposit box, or obtain any kind of agency or trust service. Nearly every city trust company operates over the entire field of banking in such a way that some have called them "department-store banks." Many national banks like the National City Bank of New York City perform services as varied.

213. Investment and loan companies. - Illustrative of companies established under state law to make loans for certain specific purposes are mortgage companies (see 135) and cattle or live stock loan companies (see 136). All of chapter 21 is devoted to the work of the investment banker.

214. Building and loan, and farm credit associations. -The building and loan association is an organization of

MORRIS PLAN BANKS

279

actual and prospective borrowers, to lend to themselves and others according to methods whereby all the profits from the transactions shall accrue to the lenders (see 133). The national farm loan associations (see 130) are cooperative. A few states are making provision for the organization of cooperative credit societies to lend on farm land. New York laws provide that if ten or more savings and loan associations which have all together not less than $5,000,000 of resources, desire, they may combine to form a "Land Bank of the State of New York." Such a land bank is authorized to sell debenture bonds which are secured by first mortgages that have been originally made to or purchased by the member associations. No land bank can issue bonds in excess of twenty times its capital. Provision is made for borrowers to pay off their loans from the association within forty years by the amortization plan (see 86). In New York state there are credit unions organized to loan money at not to exceed 1% a month. Shares of stock are sold at $25 each and paid for by savings deposits. The unions can lend on personal or other security, and can borrow up to 40% of their capital. Massachusetts also has credit unions. In Iowa a farm credit corporation can do practically everything that an intermediate credit bank or a national agricultural credit corporation can do except issue securities which are exempt from taxation.

215. Morris plan banks. These banks so called from the founder of the first bank of its kind in Norfolk, Virginia, make loans to wage and salary earners, who wish to borrow without real estate or collateral security and repay the loan in still smaller amounts. If a man wants to borrow $50 he gives references as to his honesty and reliability and obtains two indorsers for his note for six months. If he is to be charged $2 interest, he gets $48, and promises to pay back $2 each week for 25 weeks. If

he borrowed $100 he would pay $4 a week. The Morris plan is essentially a plan to get the people to pay their debts and then get out of debt to this bank on the partial payment plan. The bookkeeping is expensive. The rate of interest is high. It is just double the apparent rate. The rate in the illustration just given amounts to about 16%.

216. Discount and acceptance banks. Any bank may discount notes, drafts, and bills of exchange. Any national bank and the banks of some states may lend their credit by accepting drafts and bills of exchange, but a few corporations have been organized primarily for such operations. One of the chief services of the Federal reserve banks is to discount paper which member banks have discounted for their customers. This is called rediscounting. A few state banks have been organized to specialize in this field. If this movement spreads it is likely that the rate for rediscounting by such banks will be lower than that of the Federal reserve banks. Under such circumstances the Federal reserve banks would be called upon principally in emergencies.

Companies have been organized under state laws to advance money against an assignment of accounts receivable, or to discount the notes and trade acceptances received by manufacturers, contractors, distributors, or retailers for work done or on the sale of goods like furniture and automobiles which are sold on the installment plan. These are called "discount companies," "finance companies," "acceptance companies," "commercial credit companies," etc.1

217. National banks. Up to the time of the Civil War local banks were all state banks. In 1863 the system of national banking associations was started as a plan of

1 See Harold G. Moulton, Financial Organization of Society, pp. 437-454. (University of Chicago Press, Chicago, 1921.)

FEDERAL LAND BANKS

281

marketing United States bonds to help finance the Civil War. These banks are local, but application for a charter is made to the Comptroller of the Currency, they are regulated by the Comptroller, and the states have no control over them except as permitted in the National Banking Act. Until the act of 1913 these banks were required to invest a portion of their capital in U. S. bonds. It is now optional to invest in bonds, but most of the national banks still maintain such investments in order to have the circulation privilege. Every national bank is a member of the Federal reserve bank of its district. National banks do a general banking business; they have savings departments; they may have safe deposit departments; they may do some of the work of trust companies; they sell and buy securities; and in small towns they may do an insurance business and act as broker for loans on real estate.

218. Federal reserve banks. chapter 20.

These are described in

219. Federal land banks.-The Federal farm loan system was created by an act of Congress passed July 17, 1916. The system is under the supervision of the Federal Farm Loan Board which conducts a bureau in the Department of the Treasury. The Board has seven members, the Secretary of the Treasury and six other members appointed by the President for terms of eight years at salaries of $10,000 a year. Not more than three members can be appointed from one political party. One member designated as the Farm Loan Commissioner is the executive officer of the Board. The Board has a staff of examiners who examine the land bank associations, reviewing appraisers and other employees, besides a farm loan registrar for each land bank in charge as trustee of the issue, transfer, and cancellation of the bank's farm loan bonds. The expenses and salaries of the Board and

all of these are paid by assessments upon the Federal and joint-stock land banks in proportion to their gross assets. Land bank appraisers also appointed by the Board are paid by the banks they serve. There are twelve Federal land bank districts in each of which is a Federal land bank with such branches as the Board may approve. The banks for each district are located as follows: (1) Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, and New Jersey, at Springfield; (2) Pennsylvania, Maryland, Delaware, Virginia, West Virginia, and District of Columbia, at Baltimore; (3) North Carolina, South Carolina, Georgia, and Florida, at Columbia; (4) Ohio, Indiana, Kentucky, and Tennessee, at Louisville; (5) Alabama, Mississippi, and Louisiana, at New Orleans; (6) Illinois, Missouri, and Arkansas, at St. Louis; (7) Michigan, Wisconsin, Minnesota, and North Dakota, at St. Paul; (8) Iowa, Nebraska, South Dakota, and Wyoming, at Omaha; (9) Oklahoma, Kansas, Colorado, and New Mexico, at Wichita; (10) Texas, at Houston; (11) California, Nevada, Utah, and Arizona, at Berkeley; (12) Washington, Oregon, Idaho, and Montana, at Spokane. Each bank had to have a minimum capital of $750,000. So few individuals, who cannot vote their shares, and whose interest must be retired at par in a few years, subscribed for stock that the United States took $8,992,130 of it. Only the shares owned by the local farm loan associations (see 130) and the Government have votes. The Government receives no dividends. Each borrower must invest 5% of his loan in stock of his local loan association to whom he applies for a loan. Each association must subscribe for an equivalent amount of stock in the Federal land bank of its district. After the loan associations have subscribed for $750,000 of their land bank stock, then for each four shares taken by a farm loan association one share of original stock is to be retired.