Reconstruction Finance Corporation
The Reconstruction Finance Corporation (RFC) was an independent agency of the United States federal government that served as a lender of last resort to US banks and businesses.
The Roosevelt administration's New Deal reforms expanded the agency, enabling it to direct disaster relief funds and provide loans for agriculture, exports, and housing.
[2] In total, the RFC gave US$2 billion in aid to state and local governments and made many loans, nearly all of which were repaid.
In 1931, amidst the high rates of bank failure, deflation, and unemployment that characterized the Great Depression in the United States, Federal Reserve board member Eugene Meyer proposed the establishment of a government agency empowered to make loans to banks and businesses in critical sectors of the US economy.
It would replace the National Credit Corporation, an agency created in 1931 to restore the liquidity of banks on the brink of failure with loans funded by the interbank lending market.
On January 22, 1932, the Reconstruction Finance Corporation Act was signed into law by President Herbert Hoover after being passed by Congress with broad bipartisan support.
[5] The initial funding for the RFC came from the sale of US$500 million worth of stocks and bonds to the United States Treasury.
He soon resigned to attend to his bank in Chicago, which was in danger of failing, and President Herbert Hoover appointed Atlee Pomerene of Ohio to head the agency in July 1932.
Hoover's reasons for reorganizing the RFC included: the broken health and resignations of Eugene Meyer, Paul Bestor, and Charles Dawes; the failure of banks to perform their duties to their clientele or to aid American industry; the country's general lack of confidence in the current board; and Hoover's inability to find any other man who had the ability and was both nationally respected and available.
The original legislation establishing the RFC did not limit it to lending to financial institutions; it was also authorized to provide loans for railroad construction and crop lands.
The purpose of these loans was to finance projects like dams and bridges, and the money would be repaid by charging fees to use these structures.
The Presidency of Franklin D. Roosevelt increased the RFC's funding, streamlined the bureaucracy, and used it to help restore business prosperity, especially in banking and railroads.
The agency now purchased bank stock and extended loans for agriculture, housing, exports, businesses, governments, and disaster relief.
In a case study of Mississippi, Vogt (1985) examined two areas of RFC funding: aid to banking, which helped many Mississippi banks survive the economic crisis, and work relief, which Roosevelt used to pump money into the state's relief program by extending loans to businesses and local government projects.
President Roosevelt merged the RFC and the Federal Deposit Insurance Corporation (FDIC), which was one of the landmarks of the New Deal.
Oscar Cox, a primary author of the Lend-Lease Act and general counsel of the Foreign Economic Administration, joined as well.
[9] These corporations helped fund the development of synthetic rubber, the construction and operation of a tin smelter, and the establishment of abaca (Manila hemp) plantations in Central America.
It had been created by the Federal Loan Administrator with the approval of the President of the United States pursuant to §5(d) of the Reconstruction Finance Corporation Act or 1932, 15 USCA §606(b) for the purpose of providing insurance covering damage to property of American nationals not otherwise available from private insurers arising from "enemy attack including by the military, naval of air forces of the United States in resisting enemy attack".
The loan became controversial, seen as a political favor to the Boeing Corporation, who supported the re-election campaign of President Harry S. Truman, and sparked a congressional inquiry.
It was "abolished as an independent agency by act of Congress (1953) and was transferred to the Department of the Treasury to wind up its affairs, effective June 1954.
Several federal agencies took over RFC assets, and the tin and abaca programs were handled by General Services Administration.
