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The commission's report documented a lack of adequate agricultural credit, where a farmer could readily secure loans on fair terms. The report led to various presidential and congressional studies, which included extensive analysis of other nations' rural credit systems.
The credit delivery method established by the 1916 Federal Farm Loan Act was based largely on Germany's Landschafts, which had operated since 1769 and appeared to be the most successful of the various European cooperative ag-credit systems.
During the pivotal congressional debate over an American agricultural credit system, nearly 100 different bills were introduced, which focused on three major approaches:
- Small, independent land banks, with federal charters but private capital. Proponents of this concept favored the non-government funding, but critics feared its built-in motive for high profits would not assure low rates to farmers.
- Twelve federal land banks owned by their farmer-borrowers, partly capitalized by the government and financed through the private purchase of tax-exempt bonds. Advocates maintained this cooperative structure would guarantee low rates, but critics disliked the government sponsorship and expense involved.
- Direct government loans to farmers, favored by the nation's farm organizations but opposed by most politicians.
Congressional proponents of these three approaches battled to a stalemate in 1914, which led to a Joint Committee on Rural Credits in 1915, which in turn drafted the final compromise adopted in 1916.
Lawmakers chose a cooperative credit structure based on 12 Federal Land Banks (FLBs), using $125 million in government seed money but financed by private capital from investors. One sidelight of the Farm Credit legislation is that it helped lawmakers prepare for more sweeping financial legislation. The chairman of the Joint Committee on Rural Credits was Rep. Carter Glass of Virginia, who teamed up with a colleague on the House Banking Committee, Rep. H.B. Steagall of Alabama, to write the Glass-Steagall Act of 1933 the basic legal structure for most of the nation's commercial banks.