Reconstruction Finance Corporation
The Reconstruction Finance Corporation (RFC) was an
History
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. Modeled after the War Finance Corporation, a government corporation that financially supported industries critical to the war effort during World War I, its purpose would be to stimulate economic growth in the United States and restore public confidence in banking and the 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
The initial funding for the RFC came from the sale of US$500 million worth of stocks and bonds to the
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.[1]
Chairmen of the Board of Directors[5]
Name | Dates of service |
---|---|
Eugene Meyer | February 2, 1932 – July 31, 1932 |
Atlee Pomerene | August 1, 1932 – March 4, 1933 |
Jesse H. Jones | May 5, 1933 – July 15, 1939 |
Emil Schram | July 16, 1939 – June 29, 1941 |
Charles B. Henderson | June 30, 1941 – April 9, 1947 |
John D. Goodloe | April 9, 1947 – April 30, 1948 |
Harley Hise | August 5, 1948 – October 9, 1950 |
W. Elmer Harber | October 11, 1950 – May 4, 1951 |
Administrators and Deputy Administrators[5]
Name and position | Dates of service |
---|---|
W. Stuart Symington, Administrator | May 4, 1951 – February 15, 1952 |
Peter I. Bukowski, Deputy Administrator | June 20, 1951 – December 31, 1951 |
Leo Nielson, Acting Administrator | February 15, 1952 – February 26, 1952 |
Harry A. McDonald, Administrator | February 26, 1952 – May 1, 1953 |
Clarence A. Beutel, Deputy Administrator | September 10, 1952 – June 1, 1953 |
Kenton R. Cravens, Administrator | May 1, 1953 – March 31, 1954 |
Laurence B. Robbins, Deputy Administrator | December 10, 1953 – March 31, 1954 |
Laurence B. Robbins, Acting Administrator | March 31, 1954 – April 26, 1954 |
Laurence B. Robbins, Administrator | April 26, 1954 – June 30, 1954 |
Under President Herbert Hoover
The first RFC president was the former US Vice President
Like the Federal Reserve, the RFC tended to bail out the banks that benefited the public the most. Butkiewicz (1995) shows that the RFC initially succeeded in reducing bank failures, but the publication of the names of loan recipients beginning in August 1932 (at the demand of Congress) significantly reduced its effectiveness, because it appeared that political considerations had motivated certain loans. Partisan politics hindered the RFC's efforts, though in 1932, monetary conditions improved because the RFC slowed the decline in the nation's money supply.
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. An amendment passed in July 1932 allowed the RFC to provide loans to state and municipal governments. 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.
Under President Franklin D. Roosevelt
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. Roosevelt appointed Texas banker Jesse H. Jones to lead the agency, and Jones turned the RFC into an empire with loans made in every state.[7]
Under the New Deal, the powers of the RFC were greatly expanded. The agency now purchased bank stock and extended loans for agriculture, housing, exports, businesses, governments, and disaster relief. Roosevelt soon directed the RFC to buy gold to change its market price. The original legislation did not call for identities of the banks receiving loans nor of any reports to Congress. This, however, was changed in July 1932 to make the RFC transparent. Bankers soon were hesitant to ask the RFC for a loan since depositers would become aware and begin to consider the possibility of their bank failing causing them to withdraw their deposits, a practice called bank running.
The RFC also had a division that 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.
Roosevelt saw this corporation as an advantage to the national government. The RFC could finance projects without Congress approving them and the loans would not be included in budget expenditures. Soon the RFC was able to buy bank preferred stock with the
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
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
The War Insurance Corporation was established December 13, 1941 by Act of June 10, 1941 (55 Stat. 249), was renamed the War Damage Corporation by Act of March 27, 1942 (56 Stat. 175), and its charter filed March 31, 1942. 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". Prior to July 1, 1942, the War Damage Corporation provided for such insurance without compensation, but by express Congressional enactment Congress added §5(g) to the Reconstruction Finance Corporation Act, 15 USCA §606(b)(2) requiring that on and after July 1, 1942, the War Damage Corporation should issue insurance policies upon the payment of annual premiums. Under the terms of War Damage Corporation's charter an authorized capital stock of US$100,000,000 was provided, all of which was subscribed for by the Reconstruction Finance Corporation.
The corporation was transferred from the Federal Loan Agency to the Department of Commerce by Executive Order #9071 of February 24, 1942, returned to the Federal Loan Agency by Act of February 24, 1945 (59 Stat. 5), and abolished by Act of June 30, 1947 (61 Stat. 202) with its functions assumed by Reconstruction Finance Corporation. The powers of War Damage Corporation, except for purposes of liquidation, terminated as of January 22, 1947.[9][10]
From 1941 through 1945, the RFC authorized over US$2 billion of loans and investments each year, with a peak of over US$6 billion authorized in 1943. The magnitude of RFC lending had increased substantially during the war.[11]
The Petroleum Reserves Corporation was transferred to the
World War II aircraft disposal
After the war, the Reconstruction Finance Corporation established five large storage, sales, and scrapping centers for
Estimates of the number of excess surplus airplanes ran as high as 150,000. By the summer of 1945, at least 30 sales-storage depots and 23 sales centers were in operation. In November 1945, it was estimated that a total of 117,210 aircraft would be transferred as surplus.
Between 1945 and June 1947, the RFC, the War Assets Corporation, and the War Assets Administration (the disposal function of the RFC was transferred to WAC on January 15, 1946, and to the WAA in March 1946) processed approximately 61,600 World War II aircraft, of which 34,700 were sold for flyable purposes and 26,900, primarily combat types, were sold for scrapping.
Most of the transports and trainers could be used in the civil fleet, and trainers were sold for US$875 to US$2,400. The fighters and bombers were of little peacetime use (outside of warbird preservation and aviation museums, and some early use for aerial firefighting in later decades) although some were sold.
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
In 1991, Rep.
See also
- Resolution Trust Corporation
- Federal Emergency Management Agency
- Emergency Relief and Construction Act
References
- ^ JSTOR 2350206.
- ^ James S. Olson, Saving Capitalism: The Reconstruction Finance Corporation and the New Deal, 1933-1940 (Princeton University Press, 2017).
- ^ Gue, 2013.
- ^ Gue (2013)
- ^ a b Preliminary inventory of the records of the Reconstruction Finance Corporation, 1932–1964 (PI 181, Record Group 173), National Archives and Records Service, 1973.
- ^ Shriver 1982.
- ISBN 978-1-4000-6964-4.
- ISBN 978-1-4000-6964-4.
- ^ Matlaw Corporation vs. War Damage Corporation 164 F.2d 281 (7th Cir. 1947)
- ^ US Government Manual 2012 p. 595
- ISBN 978-1-4000-6964-4.
- ^ "Lady with a Past". Ernest K. Gann's Flying Circus. New York: Macmillan Publishing Company. 1974. Retrieved October 27, 2018.
- ^ "Reconstruction Finance Corporation". The Columbia Encyclopedia (Sixth ed.). Encyclopedia.com. 2008. Retrieved October 9, 2010.
- Whitten, Jamie L. (March 19, 1991). "H.R.1462, Reconstruction Finance Corporation Act of 1991". Library of Congress. Archived from the originalon July 5, 2016. Retrieved June 29, 2012.
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. ISSN 0014-4983.
- Butkiewicz, James (July 19, 2002). "Reconstruction Finance Corporation". In Whaples, Robert (ed.). EH.Net Encyclopedia. Archived from the original on October 29, 2013. Retrieved August 5, 2009.
- Butkiewicz, James. "Eugene Meyer and the German Influence on the Origin of US Federal Financial Rescues." Journal of the History of Economic Thought 37.1 (2015): 57–77. online
- Calomiris, Charles W., et al. "The effects of reconstruction finance corporation assistance on Michigan's banks' survival in the 1930s." Explorations in Economic History 50.4 (2013): 526–547. online
- Calomiris, Charles W., Marc Flandreau, and Luc Laeven. "Political foundations of the lender of last resort: a global historical narrative." Journal of Financial Intermediation 28 (2016): 48–65. online
- Ebersole, Franklin, J. “One Year of the Reconstruction Finance Corporation.” Quarterly Journal of Economics 47#3 (May 1933): 464–492.
- Gou, Michael et al. "Banking Acts of 1932" 100 Years Federal Reserve System (2013) online
- Jones, Jesse H.; Pforzheimer, Carl H. (1951). Fifty billion dollars: My thirteen years with the RFC, 1932–1945. New York: Macmillan. OCLC 233209. detailed memoir by longtime chairman
- Koistinen, Paul A. C. (2004). Arsenal of World War II: The Political Economy of American Warfare, 1940–1945. Lawrence, KS: University Press of Kansas. ISBN 9780700613083. shows how RFC financed many war plants
- Lawson, Aidan. "US Reconstruction Finance Corporation: Preferred Stock Purchase Program." Journal of Financial Crises 3.3 (2021): 738–785. online
- Mason, Joseph. “Do Lender of Last Resort Policies Matter? The Effects of Reconstruction Finance Corporation Assistance to Banks.” Journal of Financial Services Research 20#1 (September 2001): 77–95.
- Mason, Joseph R. (April 2003). "The Political Economy of Reconstruction Finance Corporation Assistance During the Great Depression". Explorations in Economic History. 40 (2): 101–121. ISSN 0014-4983.
- Nash, Gerald D. (December 1959). "Herbert Hoover and the Origins of the Reconstruction Finance Corporation". The Mississippi Valley Historical Review. 46 (3): 455–468. JSTOR 1892269.
- Olson, James S. (1977). Herbert Hoover and the Reconstruction Finance Corporation, 1931–1933 (1st ed.). Ames, IA: Iowa State University Press. ISBN 9780813808802.
- Olson, James S. (1988). Saving Capitalism: The Reconstruction Finance Corporation and the New Deal, 1933–1940. Princeton, NJ: Princeton University Press. ISBN 9780691047492.
- Shriver, Phillip R. (1982). "A Hoover Vignette". Ohio History. 91: 74–82. ISSN 0030-0934.
- Vogt, Daniel C. (1985). "Hoover's RFC in Action: Mississippi, Bank Loans, and Work Relief, 1932–1933". Journal of Mississippi History. 47 (1): 35–53. ISSN 0022-2771.
- White, Gerald Taylor (1980). Billions for Defense: Government Financing by the Defense Plant Corporation During World War II. University, AL: University of Alabama Press. ISBN 9780817300180.
Video
- Strange, Eric, prod. (1999). Brother, Can You Spare a Billion? The Story of Jesse H. Jones (Color and black and white video). Houston, TX: Houston Public Television.
External links
- Oral History Interview with Hubert F. Havlik, Truman Presidential Library, June 20, 1973.
- Records of the Reconstruction Finance Corporation