Reconstruction Finance Corporation

The Reconstruction Finance Corporation (RFC) was a government corporation in the United States 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 New Deal and continued to operate through World War II. It was disbanded in 1957, when the US government concluded that it no longer needed to stimulate lending.

The RFC was an independent agency of the United States government, and fully owned and operated by the government. The idea was suggested by Eugene Meyer of the Federal Reserve Board of Governors, recommended by President Hoover, and established by Congress in 1932. It was modeled after the War Finance Corporation of World War I. In total, it gave $2 billion in aid to state and local governments and made a large number of loans, nearly all of which were repaid.

The agency played a major role in recapitalizing banks in the 1930s and it was effective in reducing bank failures and stimulating bank lending. It also helped to set up relief programs that were taken over by the New Deal in 1933.

Part of the Federal Reserve System's mission was to act as a lender of last resort to banks during financial panics. However, the Board of Governors did not have enough authority to mandate policies or act independently. Many of the governors, as well as members of Congress and the public, wanted the Federal Reserve to be more active as the Great Depression began—for instance, by increasing the amount of money in circulation and liquidating financial markets. Opponents of these proposals believed that they would eventually create high inflation, hurting the economy in the long term.

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