What did the Reconstruction Finance Corporation do successfully?
Despite some initial success, the Reconstruction Finance Corporation never had its intended impact. By its very structure, it was in some ways a self-defeating agency. The law required full transparency — the amounts of all loans and the names of the recipient companies were made public.
What was the Reconstruction Finance Corporation purpose?
The RFC was a new government-sponsored financial institution whose purpose was to lend directly to banks and other financial institutions including those without access to Federal Reserve credit facilities.
Did the Reconstruction Finance Corporation succeed?
The RFC lending program failed to prevent the worst financial crisis in American history. The effectiveness of RFC lending to March 1933 was limited in several respects. The RFC required banks to pledge assets as collateral for RFC loans.
What was the purpose of the Reconstruction Finance Corporation quizlet?
What was the purpose of the Reconstruction Finance Corporation? Was it effective? It's prupose was to provide federal loans to troubled banks, railroads, and other businesses. It failed to deal directly with the economic crisis to produce recovery.
Who benefited from Reconstruction Finance Corporation?
The Reconstruction Finance Corporation benefited business owners and bankers: those at the top of the American economy.
How did the Reconstruction Finance Corporation impact the Great Depression?
The support provided to those banks has been likened to the bailouts provided in modern times. The Reconstruction Finance Corporation helped minimize bank failures and improve monetary conditions prior to the banking crisis of 1933 by financing agriculture, commerce and industry.
Who received funds from the Reconstruction Finance Corporation?
funds were allocated to the Federal Emergency Relief Administration, the Farm Credit Administration, and the Secretary of Agriculture, while the Secretary of the Treasury received $200,000.000 to purchase the capital stock of the Home Owners Loan Corporation. By using the R. F. C.
What was the purpose of the President Hoover's Reconstruction Finance Corporation created in 1932 quizlet?
Federal agency established by Herbert Hoover in 1932 to help American industry by lending government funds to endangered banks and corporations, which Hoover hoped would benefit people at the bottom through trickle-down economics.
Why did the Reconstruction Finance Corporation have no overall impact on the American economy quizlet?
It did not work because many farmers would not participate and the effort was too small to make an impact on the market. Violence broke out on several occasions and though this was a limited effort, it created uproar in state governments in farmer states.
What was the AAA quizlet?
The Agricultural Adjustment Act (AAA) was a United States federal law of the New Deal era which reduced agricultural production by paying farmers subsidies not to plant on part of their land and to kill off excess livestock. Its purpose was to reduce crop surplus and therefore effectively raise the value of crops.
What was the Reconstruction Finance Corporation Apush?
Reconstruction Finance Corporation (RFC) Government lending agency made under the Hoover administation to help insurance companies, banks, agricultural organizations, railroads, and local governments. Beginning of agencies that would grow out of the New Deal.
When was the Reconstruction Finance Corporation created?
January 22, 1932, United StatesReconstruction Finance Corporation / Founded
What is reconstruction finance?
The Reconstruction Finance Corporation was a government corporation administered by the United States Federal Government between 1932 and 1957 that provided financial support to state and local governments and made loans to banks, railroads, mortgage associations, ...
When was the Reconstruction Finance Corporation Act passed?
To address these problems, President Herbert Hoover asked and Congress passed the Reconstruction Finance Corporation Act of 1932 with broad bipartisan support. Hoover signed the Act into law on January 22.
Why did the RFC create its own mortgage company?
The mortgage company was affected as well since families were not able to make their payments. This led the RFC to create its own mortgage company to sell and insure mortgages . The Federal National Mortgage Association (also known as Fannie Mae) was established and funded by the RFC. It later became a private corporation. An Export–Import Bank was also created to encourage trade with the Soviet Union. Another bank was established to fund trade with all other foreign nations a month later. They eventually merged and make loans available to exports. Roosevelt wanted to reduce the gold value of the US dollar. In order to accomplish this, the RFC purchased large amounts of gold until a price floor was set.
Why did the RFC lend money?
The RFC lent to solvent institutions that could not be sold to repay their existing liabilities but would be able to do so in the long run. A main reason for such loans was to ensure that depositors got their money back. The Reconstruction Finance Corporation spent US$1.5 billion in 1932, US$1.8 billion in 1933, and US$1.8 billion in 1934 before dropping to about US$350 million a year. In August 1939, on the eve of World War II, it greatly expanded to build munitions factories. In 1941, it disbursed US$1.8 billion. The total loaned or otherwise disbursed by the RFC from 1932 through 1941 was US$9.465 billion.
What was the RFC's main benefit?
Soon the RFC was able to buy bank preferred stock with the Emergency Banking Act of 1933. Buying stock would serve as collateral when banks needed loans. This, however, was somewhat controversial because if the RFC was a shareholder than it could interfere with salaries and bank management. The Federal Deposit Insurance Corporation (FDIC) was later created to help decrease bank failures and insure bank deposits. The second main assistance was to farmers and their crop lands . The Commodity Credit Corporation was established to provide assistance. The agriculture was hit hard with a drought and machinery like the tractor. One benefit it provided to these rural cities was the Electric Home and Farm Authority, which provided electricity and gas and assistance in buying appliances to use these services.
What was the purpose of the RFC?
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. To help with unemployment, a relief program was created that would be repaid by tax receipts.
How much did the reconstruction finance corporation spend in 1932?
The Reconstruction Finance Corporation spent US$1.5 billion in 1932, US$1.8 billion in 1933, and US$1.8 billion in 1934 before dropping to about US$350 million a year. In August 1939, on the eve of World War II, it greatly expanded to build munitions factories. In 1941, it disbursed US$1.8 billion.
How long did the reconstruction finance corporation last?
Un-derstanding Reconstruction Finance Corporation (RFC) Despite intentions to last only 10 years, the RFC stayed in business for decades before being dismantled in 1957. 2 During its time of operation, the RFC expanded its authority, ultimately making loans to smaller businesses, railroads and even farmers.
What did the RFC do after the New Deal?
After Roosevelt took office and the New Deal went into effect, the agency more vigorously sought to provide aid and support for recovery efforts following the initial blow of the Great Depression.
Why was the RFC created?
3 . While Congress created the RFC to provide financial relief for a country in economic turmoil following the major stock market crash of 1929, the agency had many faults.
What is the RFC?
Definition of Reconstruction Finance Corporation (RFC) The Reconstruction Finance Corporation was a United States government agency tasked with assisting the failing banking sector in the years after the stock market crash of 1929. In 1932, Congress approved for the RFC to begin business with strict mandates that required ...
Why did the RFC expand during WWII?
The RFC expanded even further during WWII to provide financing for the construction and operation of war plants and loans to foreign governments. The original concept was that the RFC would be a non-political, autonomous agency, and during its earliest years, this concept held.
When was the RFC dismantled?
Remaining functions of the agency slowly transferred to other agencies, and in 1957 the all-but-defunct RFC was dismantled entirely. 7
When did the RFC get reorganized?
The Senate Committee on Banking and Currency mandated an immediate reorganization, leading to a restructuring of the RFC in 1952. 5 6
What was the role of the reconstruction finance?
The Reconstruction Finance Corporation eventually grew in scope to finance agricultural, commercial and industrial endeavors through billions of dollars in loans until it was disbanded in 1957. It played a significant role in funding New Deal programs under President Franklin Delano Roosevelt to help the United States recover from its worst financial crisis .
How much money did the reconstruction finance corporation give?
The Reconstruction Finance Corporation distributed nearly $2 billion a year in loans in its first three years of existence, though the money was not enough to lift the country out of its economic woes.
Why was the Reconstruction Finance Corporation criticised?
The Reconstruction Finance Corporation endured criticism for bailing out some banks and railroads and not others —particularly larger institutions instead of smaller, community-based ones. For example, the Reconstruction Finance Corporation was hit for lending $65 million in the early years to Bank of America and $264 million to railroads controlled by some of the wealthiest families and corporations in the nation. The original plan for the agency was to help rescue small banks in rural parts of the United States that typically did not have access to Federal Reserve loans.
How did the reconstruction finance corporation help minimize bank failures and improve monetary conditions prior to the banking crisis of 1933?
The Reconstruction Finance Corporation helped minimize bank failures and improve monetary conditions prior to the banking crisis of 1933 by financing agriculture, commerce and industry.
What was the Federal Reserve Bank of Cleveland modeled after?
The agency was modeled after the War Finance Corporation, the federal government's effort to "centralize, coordinate, and fund the procurement and supply operations that accompanied formal U.S. entry into World War I in April 1917 ," according to Federal Reserve Bank of Cleveland research officer Walker F. Todd.
When was the Reconstruction Finance Act passed?
Signed into law by Hoover on Jan. 22, 1932 , the Reconstruction Finance Act created the federal lending agency with $500 million in capital from the U.S. Treasury "to provide emergency financing facilities for financial institutions, to aid in financing agriculture, commerce, and industry."
What was the original plan for the agency?
The original plan for the agency was to help rescue small banks in rural parts of the United States that typically did not have access to Federal Reserve loans. According to Hoover: "It is not created for the aid of big industries or big banks. Such institutions are amply able to take care of themselves.
What was the purpose of the Reconstruction Finance Corporation?
The Reconstruction Finance Corporation (RFC), which Hoover approved in January 1932, was designed to promote confidence in business . As a federal agency, the RFC loaned public money directly to various struggling businesses, with most of the funds allocated to banks, insurance companies, and railroads. Some money was also earmarked to provide states with funds for public building projects, such as road construction.
Why did Herbert Hoover create the Reconstruction Finance Corporation?
In the depths of the Great Depression of the early 1930s, President Herbert Hoover created the Reconstruction Finance Corporation to restore business confidence. Learn about the effects of the program, and test your knowledge with a quiz.
What was the RFC loan?
In making these loans, the government hoped businesses would hire additional workers, thereby creating economic growth and stalling the depression. Today, we would call the theory behind the RFC 'trickle-down economics .' According to the theory, if government pumped money into the top sectors of the economy, such as big businesses and banks, it would trickle down in the long run and help those at the bottom through opportunities for employment and purchasing power. Supporters felt the loans were a way to 'feed the sparrows by feeding the horses'; critics referred to the programs as a 'millionaires' dole.'
What did Hoover do to help the economy?
With this approach in mind, President Hoover first met with business and labor leaders and urged them to take voluntary measures to address the deepening economic crisis. Hoover convinced employers to keep workers on the job and maintain production levels. In exchange, workers agreed to accept prevailing wages, hours, and conditions, and not go on strike. The deteriorating situation of the Great Depression, however, forced businesses to lay off workers in large numbers and cut production.
How did the RFC impact banks?
On the positive side, the RFC did prevent banks and businesses from collapsing. For example, banks were able to keep their doors open and protect depositors' money, and businesses avoided laying off even more workers. The broader effects, however, were minimal. Most observers agreed that the positive impact of the RFC was relatively small.
Did the RFC help the most needy?
And critics there were: many noted that the RFC provided no direct loans to towns or individuals, and relief did not reach the most needy and those suffering the most. One of the most vocal opponents of the RFC, New York Senator Robert F. Wagner, asked Hoover why he refused to 'extend a helping hand to that forlorn American, in very village and every city of the United States, who has been without wages since 1929?'
What was the role of the Reconstruction Finance Corporation?
The Reconstruction Finance Corporation (modeled after the earlier War Finance Corporation) was created in early 1932 under the Hoover Administration as what amounted to the “discount lending” facility of the Federal Reserve System: it would lend to financial institutions chartered by states and in rural areas. (It replaced a less successful agency, the short-lived National Credit Corporation.) With the election of Roosevelt and its inclusion in the policy implementations of the New Deal, the size of the RFC expanded – as, predictably, did its reach. Among its broadened powers were the ability to purchase stock in banks and extend loans for everything from agricultural projects to disaster relief.
When was the reconstruction finance corporation created?
The Reconstruction Finance Corporation (modeled after the earlier War Finance Corporation) was created in early 1932 under the Hoover Administration as what amounted to the “discount lending” facility of the Federal Reserve System: it would lend to financial institutions chartered by states and in rural areas.
When did the RFC fail?
Although the rate of bank failures temporarily slowed down after the corporation began lending, this was probably a coincidence … By early 1933 banks again began failing at an alarming rate, and RFC loans failed to avert the banking crisis. The ineffectiveness of the RFC was most apparent in February 1933, when the banks in Michigan collapsed despite the efforts of the RFC directors to save the leading banks of Detroit.
When did the RFC begin purchasing gold?
When the Roosevelt Administration set its sights upon devaluing the dollar, the RFC was the agency through which part of the operation was accomplished: it began quietly purchasing gold in global markets when the price was approximately $31.36 per ounce. In doing so it slowly lifted the gold price to $34 per ounce and then set a floor at $35 per ounce, which was announced as the new official dollar price of gold in January 1934.
When did the RFC start extending emergency loans?
That blizzard of highly questionable loans completed, in June of 1932 the RFC began extending emergency loans under a new mandate of transparency, publicly posting the names of banks and other firms which received its aid.
Was the RFC transparent?
Initially, the transparency which is often cited as one of the RFC’s attributes was not in place. And by several accounts, during those first five opaque months of operation – before taxpayers could see what it was up to – the activity of the Reconstruction Finance Corporation was an unabashed, quintessential purveyor of cronyism:
Is the reconstruction finance corporation a government agency?
The Reconstruction Finance Corporation was far from the model of a scrupulous, competent and independent government agency that it is alleged to be. Governments have done enough damage locking down billions of people and crushing commercial enterprise when there have been clear alternatives to doing so from the start. However well-intended, a Coronavirus Finance Corporation would inevitably follow the same path as the RFC did.
How much money did the Reconstruction Finance Corporation borrow?
This legislation created the Reconstruction Finance Corporation (RFC) under the following terms: Congress provided the agency with an initial capitalization in the amount of $500 million. The RFC was empowered to borrow up to $2 billion to assure the survival of large banks, railroads, farm mortgage associations, ...
Was the reconstruction finance corporation a success?
Despite some initial success, the Reconstruction Finance Corporation never had its intended impact. By its very structure, it was in some ways a self-defeating agency. The law required full transparency — the amounts of all loans and the names of the recipient companies were made public.
Did the RFC extend to other sectors?
Congress seized on the encouraging news and pressed to extend RFC loans to other sectors of the economy. Hoover, however, resisted a broad-based expansion of the program, but did allow some loans to state agencies that sponsored employment-generating construction projects.
What was the role of the Reconstruction Finance Corporation?
It played a major role in the New Deal and World War II. It closed in 1953 and was replaced by the much smaller Small Business Administration.
What were the RFC's subsidiaries?
The eight RFC wartime subsidiaries are Metals Reserve Company, Rubber Reserve Company, Defense Plant Corporation, Defense Supplies Corporation, War Damage Corporation, U.S. Commercial Company, Rubber Development Corporation, Petroleum Reserve Corporation. These corporations were involved in funding the development of synthetic rubber, construction and operation of a tin smelter, and establishment of abaca (Manila hemp) plantations in Central America. Both natural rubber and abaca (used to produce rope products) were produced primarily in south Asia, which came under Japanese control. Thus, these programs encouraged the development of alternative sources of supply of these essential materials. Synthetic rubber, which was not produced in the United States prior to the war, quickly became the primary source of rubber in the post-war years.
What was the RFC loan?
RFC engaged in numerous loan activities after the war to help small business. For example, in 1949 Lustron Steel was responsible for one-tenth of the outstanding industrial and commercial loans of the agency. In 1946 its owner Carl Strandlund inspired by the availability of RFC loans, the severe postwar housing shortage and wartime methods of mass production of ships, developed the idea of mass-producing steel-frame homes for sale by local dealers. His ranch-style house used porcelain-enameled steel for exterior and interior walls, window frames, and door jambs, and ceiling panels; components were made in Columbus, Ohio. Lustron stymied by the myriad of local building regulations that mandated conventional materials, and by the impatience of RFC which cut its losses and foreclosed.
How did the RFC help the New Deal?
The RFC played a major role in creating the system of work relief in the states that was continued and expanded by the New Deal. Hoover and Roosevelt used the RFC to pump money into the state's relief program by extending loans to businesses and local government projects. It established a federal agency in local communities which provided a reservoir of experienced personnel to implement expanding New Deal programs.
What was the RFC in Mississippi?
The RFC gave the states loans for emergency relief needs. 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. Although charges of political influence and racial discrimination were levied against RFC activities, the agency made positive contributions and established a federal agency in local communities which provided a reservoir of experienced personnel to implement expanding New Deal programs.
What was the RFC after the Korean War?
After the war the RFC took over the Smaller War Plants Corporation (SWPC), a wartime agency that provided direct loans to small business. In 1950-53 the Small Defense Plants Administration (SDPA) certified small businesses to the RFC when it had determined the businesses to be competent to perform the work of government contracts, especially relating to the Korean war effort. The RFC was replaced in 1953 by the U.S. Small Business Administration. It is still in operation and 20 million small businesses have received direct or indirect help from one or another of those SBA programs.
How much did the RFC lend in 1943?
From 1941 through 1945, the RFC authorized over $2 billion of loans and investments each year, with a peak of over $6 billion authorized in 1943. The magnitude of RFC lending had increased substantially during the war. Most lending to wartime subsidiaries ended in 1945, and all such lending ended in 1948.
Overview
The Reconstruction Finance Corporation was a government corporation administered by the United States Federal Government between 1932 and 1957 that provided financial support to state and local governments and made loans to banks, railroads, mortgage associations, and other businesses. Its purpose was to boost the country's confidence and help banks resume daily functions after the start of the Great Depression. The RFC became more prominent under the Ne…
History
There was no federal agency that could make massive loans to critical sectors of the depressed economy. To address these problems, President Herbert Hoover asked and Congress passed the Reconstruction Finance Corporation Act of 1932 with broad bipartisan support. Hoover signed the Act into law on January 22. Like the Federal Reserve, the RFC would loan to banks, but it was designed to serve state-chartered banks and small banks in rural areas that were not part of the F…
Under President Herbert Hoover
The first RFC president was the former US Vice President Charles Dawes. 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. The presidency of the RFC thus switched from a Republican to a Democrat. Hoover's reasons for reorganizing the RFC included: the broken health and resignations of Eugene Meyer, Paul Bestor, and Charles Dawes; the failure of b…
Under President Franklin D. Roosevelt
President Franklin D. Roosevelt, who took office in 1933, increased the RFC's funding, streamlined the bureaucracy, and used it to help restore business prosperity, especially in banking and railroads. He appointed Texas banker Jesse H. Jones to lead the agency, and Jones turned the RFC into an empire with loans made in every state.
Under the New Deal, the powers of the RFC were greatly expanded. The agency now purchased …
World War II
The RFC's powers, which had grown even before World War II began, further expanded during the war. 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. Lauchlin Currie, …
Disbanding
After World War II ended, the type of loans provided by the RFC were no longer in demand. During the late 1940s RFC made a large loan to Northwest Orient Airlines earmarked for the purchase of ten Boeing Stratocruiser airliners. 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. President Dwight D. Eisenhower was in office when legislation t…
See also
• Resolution Trust Corporation
• Federal Emergency Management Agency
• Emergency Relief and Construction Act
Bibliography
• Barber, William J. (1985). From New Era to New Deal: Herbert Hoover, the Economists, and American Economic Policy, 1921–1933. Cambridge: Cambridge University Press. ISBN 9780521305266.
• Butkiewicz, James L. (April 1995). "The Impact of a Lender of Last Resort During the Great Depression: the Case of the Reconstruction Finance Corporation". Explorations in Economic History. 32 (2): 197–216. doi:10.1006/exeh.1995.1007.
• Barber, William J. (1985). From New Era to New Deal: Herbert Hoover, the Economists, and American Economic Policy, 1921–1933. Cambridge: Cambridge University Press. ISBN 9780521305266.
• Butkiewicz, James L. (April 1995). "The Impact of a Lender of Last Resort During the Great Depression: the Case of the Reconstruction Finance Corporation". Explorations in Economic History. 32 (2): 197–216. doi:10.1006/exeh.1995.1007. ISSN 0014-4983.
What Was The Reconstruction Finance Corporation (RFC)?
Understanding The Reconstruction Finance Corp.
- Congress created the RFC primarily to shore up the nation's banks, which were collapsing under the strain of panic withdrawals from their customers as the Great Depression took hold. It was intended to stay in business for only 10 years, but the RFC continued and even expanded throughout the 1930s and the 1940s.1 Soon after its creation, the RFC expanded its lending acti…
History of The Reconstruction Finance Corp.
- The Emergency Relief Act, created in the summer of 1932, broadened the agency's scope and power.2It allowed the RFC to extend loans to local and state public works as well as farmers and small businesses. In its initial years, under President Herbert Hoover, the RFC made little use of its expanded powers. After Franklin D. Roosevelt took office and the New Dealwent into effect, the …
End of The Reconstruction Finance Corp.
- Post-depression and post-war, the work of the RFC began to wind down. In 1948, Congress began a series of investigations of political corruption within the RFC. One accusation was that the RFC had granted a loan to a customer of Boeing Corp. in return for Boeing's support of President Harry S. Truman. The Senate Committee on Banking and Currency mandated an immediate reorganiza…
Economic Review of The Reconstruction Finance Corp.
- The Reconstruction Finance Corp. filled the role of lender of last resort that in later years has been held by the Federal Reserve. Although it had been created in 1913, the Federal Reserve did not have the ability to lend to state-chartered banks. Nor did banks then have federal insurance to guarantee their deposits. It was those state-chartered banks that served America's small busine…
Creation of The Reconstruction Finance Corporation
Criticism of The Reconstruction Finance Corporation
- The Reconstruction Finance Corporation endured criticism for bailing out some banks and railroads and not others—particularly larger institutions instead of smaller, community-based ones. For example, the Reconstruction Finance Corporation was hit for lending $65 million in the early years to Bank of America and $264 million to railroads controlled by some of the wealthies…
Impact of The Reconstruction Finance Corporation
- The creation of the Reconstruction Finance Corporation is credited with saving many banks and it also provided an alternative to the controversial plan of making the Federal Reserve the so-called lender of last resort to failing financial institutions during this crisis. (A lender of last resort is a term used to describe the central bank of a nation that works to rescue troubled institutions. Th…
Sources
- “Records of the Reconstruction Finance Corporation.” National Archives and Records Administration, National Archives and Records Administration, www.archives.gov/research/guide-fed-records/groups/2...
- Patch, B.W. “The R.F.C. Under Hoover and Roosevelt.” CQ Researcher by CQ Press, Congressional Quarterly Press, 17 July 1935, library.cqpress.com/cqresearcher/document.ph…
- “Records of the Reconstruction Finance Corporation.” National Archives and Records Administration, National Archives and Records Administration, www.archives.gov/research/guide-fed-records/groups/2...
- Patch, B.W. “The R.F.C. Under Hoover and Roosevelt.” CQ Researcher by CQ Press, Congressional Quarterly Press, 17 July 1935, library.cqpress.com/cqresearcher/document.php?id=cqresrre1935071700.
- "Saving Capitalism: The Reconstruction Finance Corporation and the New Deal, 1933-1940." Olson, James Stuart, Princeton University Press, Mar 14, 2017.
