The federal farm loan system was instituted to organize the market for real estate mortgages and facilitate long-term loans to farmers. As will be shown later, the national banks fail to provide rural credits to the degree that they provide commercial, mercantile, and industrial credits; the state banks, although they have done more to this end than the national banks, have likewise proved inadequate. In fact, the fusion of commercial banking and long-term rural credit operations is held in the United States to be theoretically and empirically unsound. The unfortunate heavy failures of many mortgage bond houses in the nineties also disinclined capital to enter the mortgage field. After an educational and legislative struggle of a decade or more, a rural credit system was inaugurated by Congress in 1916.

The system consists of a Federal Farm Loan Board, with jurisdiction over two schemes of providing rural credits:

1. That provided by twelve federal land banks, owned by some 4,000 co-operative national farm loan associations.

1 See Bulletin of National Association of Credit Men, Oct. 1917, p. 055; Journal of Political Economy, Vol. 26, p. 807; Year Book, Department of Agriculture, 1918.

2. That provided by some 30 federal joint-stock land banks, which are joint-stock farm mortgage bond companies with federal charters.