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 gave approval for the RFC to begin business with strict mandates that required the agency to issue emergency loans to banks facing the threat of going under.

BREAKING DOWN 'Reconstruction Finance Corporation - RFC'

Despite intentions to last only 10 years, the RFC stayed in business for decades before being dismantled in 1957. During its time of operation, the RFC expanded its authority, ultimately  making loans to smaller businesses, railroads and even farmers. The RFC also developed eight subsidiaries designed to aid wartime efforts during World War II.

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. Despite lasting more than twice as long as intended, the agency inevitably shut down for a variety of reasons.

The History Behind the Reconstruction Finance Corporation

The Emergency Relief Act, created in the summer of 1932, the year following the creation of the RFC, broadened the agency's scope and power. The act allowed the RFC to provide loans for local and state public works, and things such as agriculture and smaller businesses. In its initial years, under the Herbert Hoover administration, the RFC made little to no use of its expanded powers. 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. 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 nonpolitical, autonomous agency, and during its earliest years, this concept held. However, as the RFC continually expanded and gained more power, it also assumed the hefty responsibility of doling out massive sums of money, becoming more integrated with politics.

Scandal and Dismantlement of the Reconstruction Finance Corporation

In 1948, Congress began a series of investigations into the RFC, which pulled back the curtain on rampant corruption within and surrounding the agency. The Senate Committee on Banking and Currency mandated an immediate reorganization, leading to a restructuring of the RFC in 1952.

Despite the effort to revamp the agency, scandal and corruption speculations continued to surround the RFC. One year after the restructuring, Congress passed the RFC Liquidation Act under the Eisenhower administration, ending all the agency’s lending power. Remaining functions of the agency slowly transferred to other agencies, and in 1957 the all-but-defunct RFC was dismantled entirely.

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