One damaging factor in the market for Federal land bank bonds is that they have fluctuated so widely. It would seem they would need some stabilizing influence, if any large volume of bonds is to be marketed to obtain funds for these loans. If it were a matter of a stock, it would not be quite so serious, but when it is a case of a bond fluctuating up and down, that makes it Mr. STRONG. What are the 412 per cent bonds worth now? Mr. BESTOR. It varies with the issue. The 1933-1953 bonds were quoted yesterday at a bid price of 78. The CHAIRMAN. What would the figures show to be the loss on the outstanding bonds according to the present market? Mr. BESTOR. I have not figured it up. Do you mean on all of the issues? The CHAIRMAN. Yes. Mr. BESTOR. AS compared to The CHAIRMAN. I am just trying to see how much loss there is in those bonds at this time, on the present market. It runs into millions, doesn't it? Mr. BESTOR. Yes; it runs into millions of dollars. The CHAIRMAN. Well, you need not give the exact figures, because, I suppose, it is ascertainable from what you have already stated. Mr. BESTOR. You can estimate it. If the average price of the ls were 85, that would be 15 per cent of $1,172,000,000, which would be about $175,000,000 less than par. The CHAIRMAN. I was just suggesting that in order to get your view as to what relief would be afforded by this legislation, the advancement of the amount provided for in this bill. Mr. BESTOR. Well, of course, that is, I suppose, largely a matter f opinion. I might say, in connection with these fluctuations in bond prices that, while they have dropped largely, the drop in the Federal land bank bonds is as nothing compared to the drop in the general run of bonds. I know the committee is fully aware of that fact. Bonds have dropped, some of them, to almost nothing, and the Federal land bank bonds have not suffered the tremendous drop which other high class bonds have suffered. The CHAIRMAN. Would not this be true, Mr. Bestor, that the decline in bonds of the Federal land banks is necessarily influenced, to a large extent, by the general bond market. rather than the fundamental elements that enter into the calculation? Mr. BESTOR. No doubt that enters very largely into the situation; ut it seems to me that, if confidence could be restored-and it would em to me this would restore confidence in the market, both from the tandpoint of what Congress's attitude would be toward the Federal and banks, and the fact that the increase in capitalization, would trengthen the security of the bonds. The law provides that a Federal land bank may with the approval of the Farm Loan Board issue bonds up to twenty times its capital. The ratio of 20 to 1 has been questioned by some investors, and as me has gone on that question has come up often in their minds, as to hether or not the ratio of 20 to 1 was an adequate ratio. This $100,000,000 revolving fund-the present capital of the banks in round numbers, $65,000,000, and outstanding bonds of $1,176,0000-of course, while it would represent, as provided in the bill, a revolving capital, you might say, a revolving fund to furnish capital to those banks which were particularly in need of it-yet, manifestly, an investor, in as nearly as we can determine, would look upon it a greatly strengthening the capital structure of the banks and greatly strengthening the position of the bonds. There is no question about that. The CHAIRMAN. If we had had a substantial surplus provided for at the outset, along with the initial capital of these banks, evidently that would have averted much of the trouble into which we have fallen, would it not? Mr. BESTOR. That is probably true. The CHAIRMAN. The effect of this, so far as the bondholders are concerned, would be to create-assuming that your present statement of bookkeeping reflects fairly the condition of the banks, to advance the sum of $100,000,000 would be equivalent to almost doubling the amount of the capital stock, which would reduce your bond liability to something less than 10 to 1, instead of 20 to 1? Mr. BESTOR. That is right. The provision of the bill provides that the $100,000,000 issue shall be used as a revolving fund, and it provides that any additional capital subscribed shall be paid back as the original capital was paid back. Each bank was originally provided with $750,000, capital, most of which was furnished by the Government, although there were some individual subscriptions; and the law provided that, after the $750,000 had been subscribed, then, the national farm loan associations, the bank should apply semiannually 25 per cent of all sums thereafter subscribed to capital stock to pay back to the Government the capital advanced, and that has all been paid back except a small amount in two banks; of the $65,791,723 of capital stock as of November 30, 1931, $204,698 was owned by the Government. This bill provides that not only could it be paid back that way, but that, at any time the land bank directors felt they were in position to pay back such capital, they might do so; and that at any time the Farm Loan Board felt that a bank was in position where it could pay back into the revolving fund some of this capital, it might be called upon to do so. Mr. GOLDSBOROUGH. When it has all been paid back, you would have a different situation. Mr. BESTOR. It all comes back into the revolving fund, ultimately. From an investment standpoint, it seems to me that it is a rather important point. Mr. GOLDSBOROUGH. That is what I thought. The CHAIRMAN. This is true, is it not, Mr. Bestor, that not only would this remain in the revolving fund, subject to call by the officials of the Federal land banks, but the bill provides for setting aside 50 per cent of the earnings? Mr. BESTOR. That is right. The CHAIRMAN. Into the surplus fund until the surplus equals the capital? Mr. BESTOR. Yes. The CHAIRMAN. So that, as we go along, we would have, independent of this fund, the duplication of the existing capital, plus the $100,000,000 Mr. BESTOR. Yes, The CHAIRMAN. To be advanced under the provisions of this bill. Mr. BESTOR. That provision is in the amendment to section 23 in this bill. Mr. STRONG. Does your board recommend the passage of this bill? Mr. BESTOR. We do, very strongly. Mr. STRONG. It appears to me that it will prevent your foreclosing on farms, on farmers who are in default. What will be your policy if this bill passes Mr. BESTOR. Well, I think that involves the whole policy of the lanks, Mr. Strong. The policies of all the banks, as stated by each of them to the Farm Loan Board recently, is that it is not their intention to foreclose on any loan until it has been given careful consideration. If, after having been investigated and given individual consideration, tis found that the borrower desires to remain on the farm, and in the opinion of the executive committee there is a reasonable chance for him to work out within a reasonable time, the bank will ride along with him. Mr. STRONG. Well, will this help that policy, this bill? Will it make it possible to carry out that policy to a greater degree than it does now? Mr. BESTOR. The answer to that is this: It would enable the banks to continue their present policy, except that if every borrower who id not want to pay thought that he would have the full privilege of not paying, or pay as he saw fit, $100,000,000 would not begin to meet the situation. Mr. STRONG. Well, of course, there will be the objection-the objection that has been suggested here is that, at the present time-the 1 for this bill was that, at the present time many farmers were ng foreclosed, that really ought not to be-would this bill help that situation? Mr. BESTOR. It should enable a bank, Mr. Strong, to carry on with e deserving borrower. Mr. STRONG. It would help the situation if the borrower is deservg of a further extension of credit? Mr. BESTOR. Well, of course, you can not look into the future. You can not tell what the future may bring forth. The danger is at which I have just pointed out; that if it is to be regarded as a st aid to the man who feels that he does not want to pay, just him the option, the $100,000,000 would be inadequate to meet the station. M. STRONG. The passage of this bill would make possible the Tension to those people who might ask it? Mr. BESTOR. May I say this, Mr. Strong? It seems to me that fundamental purpose that this bill has, is to continue the Federal bank system, and enable it to continue to sell bonds at a rate will enable it to furnish money to the solvent farmer who needs *money and can qualify under the terms of the Farm Loan Act. Mr. STRONG. Yes. Mr. BESTOR. That is primarily what it is to do. Mr. STRONG. Certainly. Mr. BESTOR. Secondarily, the banks can refund their bonds, and that increase in capital they can increase their own earnings to point that they can carry a larger amount of delinquent, but ately good loans should develop. Mr. STRONG. Increases it 50 per cent? Mr. BESTOR. I could not say as to that. Any increase in the capital at this time, would do the fundamental thing of enabling the banks to carry on in the making of loans by restoring confidence in their bonds. I might say that I do not think the prices of these bonds reflect at all the actual values back of the bonds. Mr. STRONG. I do not either. Mr. BESTOR. It seems to us this is the best method of approach and is a sound way to meet the situation of continuing the Federal land bank system. Mr. STRONG. In other words, this is necessary, you think, to continue it in a substantial way? Mr. BESTOR. That is what we feel. Mr. STRONG. Could I ask you now about how many millions of dollars of loans to farmers are outstanding? Mr. BESTOR. Yes, sir. Before I answer that, may I say that. undoubtedly, it was the intention that the Federal land banks should be permanent institutions; and that they should be run on a business basis. Therefore, when you come to the question of how long they should ride along with a delinquent borrower, it becomes a question as to how long the bank's earnings, sound banking, and common sense will permit a bank to ride along with a delinquent borrower. Mr. STRONG. What good business requires? Mr. BESTOR. Yes, sir. That is, the individual borrower, does he want to stay on his farm? Has he got any chance of working out his situation in time? The CHAIRMAN. Mr. Bestor, thank you. Mr. STRONG. May I get that question about how many millions of dollars in the record? The CHAIRMAN. Yes; go ahead. Mr. BESTOR. The total loans outstanding? Mr. STRONG. Yes, approximately. Mr. BESTOR. The total net mortgage loans were $1.171,699,700 on the 30th of November. Mr. STRONG. One billion and three-quarters? Mr. BESTOR. No; $1,171,000,000. There is about a billion and three-quarters in the system, including the joint stock land banks. The CHAIRMAN. Mr. Bestor, we have in my section of the country a situation where a foreclosure can not result in realizing the payment due on the mortgages. I think that I might say that I know conditions in my immediate section well enough to say that it is a fact; and they complain that the banks institute foreclosures and take over the land, and not be able to find purchasers, and then refuse to lease to the original owner or the mortgagor, or to sell to him under any circumstances, but proceed to install new tenants. and in many cases to sell the land without cash payment to the new purchaser: notwithstanding the fact that in many instances the original mortgagor might have met his payment over a period of years, down to the time of this immediate distressing situation in which we find ourselves. Mr. BESTOR. It is difficult, Mr. Chairman, to discuss these individual cases without knowing all the facts. The CHAIRMAN. I am not speaking now of individual cases. I am speaking now of what is more or less a general situation. Mr. BESTOR. In a situation such as you have outlined, a policy of that sort could not possibly be justified. There is nothing saved, of course, by putting one man off a farm and putting on another man no better, unless the new man is not so heavily burdened with debts. The CHAIRMAN. I have seen this naturally in many cases, where a man was reared there, and probably born there, and reared his children there, and his father before him, and all of those things that go into the personal side of the immediate situation. Mr. BESTOR. Of course, many times you have a situation where the borrower is not in position to operate his farm, and somebody else is in a better position to do it. Ordinarily selling on the shoestring basis is not accomplishing anything, because it probably will not stay sold; but the reports of the banks generally would indicate that they are trying to make these sales on a sound basis; and they are trying to put men on them who can make good. The CHAIRMAN. Let me call your attention-it is not directed to the point or the matter that we have under discussion, but it does touch generally the matter of the general policy of the administration of these banks. I do not know whether all of these things should be discussed anywhere, and all of these complaints aired, but this is what I had-part of what I had started to ask was this: Do you know of a policy anywhere, or a practice anywhere on the part of the banks, to require borrowers to give personal security, or security for their loans other than their land? Mr. BESTOR. If I understand your question, Mr. Chairman— Mr. BESTOR. You mean to secure an installment-to further secure 1 delinquent installment? The CHAIRMAN. Yes. Mr. BESTOR. I think some of the banks, in individual cases, perLaps a considerable number of them, have said to the borrower, "We are going to ride along with you, but we feel you should make the elinquent installment secure, if you have anything to secure it th. The banks have come to that conclusion because they feared that from time to time some of the other creditors might step in head of them, and they felt it was good business to do it. The CHAIRMAN. I did not get that. Mr. BESTOR. Because of the fact of other creditors might step in they felt it was good business to get the borrower to secure the stallment. The CHAIRMAN. Let me call your attention to an individual case, I would not do so if it were the only case. Recently, in my me town we had a public gathering, a farmers' meeting, and so th. a barbecue, and I happened to meet a friend from an adjoinCounty that I knew personally, and he told me that he secured a an in 1919 and met his installments then on down to 1929; that in he had a crop failure and could not pay it, and that same thing l happened in 1930, substantially. Now," he said, "my condiTo is this. Mr. Steagall: The land bank sent its agent here and they are taken a second mortgage on my crop for this year to secure o unpaid installments on my mortgage covering my land. I will able to pay for the advances made to make my crop in 1931, and the land bank would extend the two payments over to 1932, I have |