The

agitation that has been aroused over rural credits. farmers probably own more rural bank stock than any other class of people.

Under existing conditions American agriculture calls for two classes of credit--long-term mortgage loans and shortterm credit loans. The former of these has hitherto been met largely by trust companies, savings banks, life insurance companies and other banking agencies not directly identified with agriculture. Short-term loans have generally been provided by the National and State banks and trust companies.

It may also be stated that under section 24 and other provisions of the Federal Reserve Act, the federal reserve banks are each in touch with a well defined section of territory and operate under broad regulations. They possess an element of discretion in the performance of their work that permits them to make the minor adjustment of relations between the credit machinery and the individual farmer, upon which the success of any credit plan rests. Farmers as a whole will not make use of any rural credit mechanism that is not adapted to their needs. Their problems are local and their needs individual. Unless there is thoroughly intelligent coöperation between the reserve banks and any new rural credit mechanism there will be duplication of governmental machinery.

These banks have provided the following new credit facilities:

First-They will discount farmers' paper collateraled by warehouse receipts at half, and in many cases considerably less than half, the current rates of interest; the rate to the farmer maker of the note to be not exceeding six per cent.

Second-They will discount farmers' paper based on all the farming activities that contribute to the production of crops or stock, at low discount rates. It is not to be expected, however, that these banks will discount notes given for buildings or to pay mortgages.

Third-They will discount at rates of interest substantially lower than the prevailing rates in the rural districts the notes of farmers arising out of the raising of live stock.

It may be added that the operation of federal reserve banks is exerting a material influence upon interest rates at centers where federal banks are located. Rates have been more moderate than in previous years. In time the constantly firm influence which has appeared in connection with money rates to commercial borrowers will be felt in the farming districts.

Thus the operations of the reserve banks already constitute a rural credits mechanism which has extended agricultural credit to the farmers and stock raisers of the United States running into immense figures. Little has been said about these transactions and the service has been quietly performed. These discounts, however, represent a form of credit that either would not have been available to the farming classes, or could have been obtained only with difficulty, if it had not been for the federal reserve banks.

THE COUNTRY-WIDE CHECK COLLECTION PLAN

May 22, 1916, the date for the inauguration of the country-wide collection plan was changed from June 15 to July 15, 1916.

Numerous protests were forwarded to members of the executive council of the American Bankers' Association, in session at Briarcliff, New York, on May 9 and 10, 1916, so that the bankers of the country might be allowed to continue to receive this heretofore considered legitimate income.,

Consideration was given to the matter at the meeting of the several committees, with the result that the members of a special committee were instructed to wait upon the Federal Reserve Board at Washington, to urge modification, or at least delay, in putting the proposed check collecting plan into effect. The committee waited upon the Federal Reserve Board promptly and had exhaustive discussion with its members.

The statute is mandatory. Paragraph 13 of section 16 of the Federal Reserve Act is to the effect that all federal

reserve banks are constrained to receive on deposit at par from the banks, or from federal reserve banks, checks and drafts drawn on any of its depositors, and when remitted by a federal reserve bank, checks and drafts drawn by any depositor in any other federal reserve bank or member bank. It is especially stated that nothing in the statute shall be construed as prohibiting a member bank from charging its actual expense in collecting and remitting funds, or for exchange sold to its patrons. The Federal Reserve Board is also constrained by rule to fix the charges to be collected by the member banks from its patrons whose checks are cleared through the federal reserve bank.

The proposed plan will revolutionize American banking practice, so far as check collections are concerned. The custom has been followed by banks throughout the country of charging "exchange" on checks received from distant points. The plan of the Federal Reserve Board comprises the collection of checks in all parts of the United States without any deduction whatever for exchange.

In accordance with the circular dated May 1, 1916, all checks on member banks going through the federal reserve bank channels must be paid and remitted for at par by the member banks on which the checks are drawn. This also applies to checks on non-member banks located in a place where there is a member bank, and where the checks on a non-member bank are sent by the federal reserve bank to the member for collection.

The making a charge for transferring money from one locality to another has been one of the most legitimate revenues of a bank. Many different methods of avoiding the charge and of substituting the check for the bank draft have been adopted, but the result has been that the small country bank especially has in some way received its "exchange".

If its customer did not purchase a draft from the bank and pay the customary exchange charge therefor, but in lieu thereof sent his check, it was customary for the bank,

when the check came to it, to deduct an amount for exchange in remitting to those from whom it was received.

The amount of uncollected checks constantly in transit in the mails, and known as "float," is estimated as high as $400,000,000. The banks in the smaller localities have been confronted with the problems of handling such items at the least possible cost.

In some cases, too, offers on the part of financial center banks to absorb the cost of collection have been proposed in order to gather volume. But regardless of what plan might have been adopted to reduce the cost in some cases, the bank of final payment received its customary compensation.

The Federal Reserve Board has directed attention to the fact that it is not compulsory for any member bank to send any of its items to any of the federal reserve banks, and that any member bank may, if it choose, continue to send its items through the customary channels.

If checks on member banks find their way into any of the federal reserve banks, the latter will send them to the member banks upon which they are drawn, and the member banks will be compelled, as required by the statutes, to pay them at par without charge for exchange to those from whom they receive them.

It may be added that the system in which personal checks to the amount of many millions of dollars were constantly circulating through circuitous routes, multiplying bank entries, inflating deposits, and counting as bank reserves, was not only expensive and inefficient, but a source of weakness. Whatever may be said in favor of moderate exchange charges, and much may be said in justification of them, the workings of the old system were unsatisfactory.

The original purpose of the authors of the Federal Reserve Act seems to have been to make checks a circulating currency, absolutely good at par everywhere, without recognizing that transfers of money may be necessary for the settlement of balances. The thirteenth paragraph of sec

tion 16 allowing a charge to cover actual cost was added after the introduction of the bill. As has been stated each federal reserve bank will receive at par from its member banks, checks drawn on all member banks, whether in its own or another district, and also checks on non-member banks where they can be collected at par. The system will be extended to include non-member banks. All member banks will be required to remit for their own checks at par, but where it is necessary for them to ship lawful money or federal reserve notes, because of inability to draw on the federal reserve bank or furnish offsets, this may be done and the expense charged to the federal reserve bank.

Checks remitted to a federal reserve bank will not count as reserve or be subject to check until collected.

It is necessary that the banks of every class shall make adequate earnings upon their capital and be compensated for services. While the readjustments are going on some of them may be unfavorably affected, but the volume of business is growing constantly. If the income is reduced from one source by a rule which applies to all banks, the result will be to seek pay in other ways.

The Federal Reserve Act was designed to bring the banking units into an organization which would afford protection from the perils to which the business is subject.

DETAILS OF THE NEW YORK FREE CHECK COLLECTION ARRANGEMENT

June 6, 1916, in a letter to the member banks of the Federal Reserve System for the New York district, Benjamin Strong, Jr., Governor of the federal bank, gave the details of the free check collection arrangement the Federal Reserve Board has adopted.

The Governor stated the expenses in connection with the new arrangement would be provided by an assessment on the member banks not to exceed one and one-half cents an item. He also stated that banks which permitted their