Financial History 143 Fall 2022 - Page 20

with the RFC ’ s lending policies and defensive mindset . Along with the new President , he viewed the agency as one that should be more forceful in first providing the banking industry with equity capital then prodding its managers to use their increased lending leverage to push out more business-stimulating loans .
Bankers , fearing the government would soon nationalize their industry , did not rush to request an RFC investment . Within a few months , however , many saw the advantages of becoming a partner with Jones ’ agency . In the nine months after the federal bank holiday , more than 4,000 banks failed . However , by granting loans and investing in preferred stock or debentures , the RFC helped as many as 2,270 others survive . It used its financial resources to support more than 6,500 institutions in 1934 when only 61 commercial banks permanently closed their doors . By the middle of 1935 , the agency had invested more than $ 1.3 billion to help more than 6,800 banks . Indeed , it owned more than 30 % of the capital of the entire industry .
Chairman Jones announced the “ bank repair ” program was essentially completed . At the same time , he noted the success of the agency ’ s efforts to help the banks by also lending more than $ 447 million to the railroads , whose debt many of them continued to hold . Doing so had enabled as much as one-third of the nation ’ s carriers to avoid receivership or bankruptcy .
Even while using its resources to succor the financial and railroad industries , the RFC under Jones took steps towards becoming the ultimate New Deal agency . The chairman used its unusual structure , dependable sources of financing and wide discretion over its lending and investing activities to bankroll FDR ’ s visionary pursuits . Congress aided that effort throughout the mid-1930s by passing several amendments to the original RFC Act that broadened the agency ’ s authority to raise its own funds and to loan money to or make investments in a wider variety of entities . Lawmakers further expanded the scope of the RFC ’ s activities by enabling it to fund newly created government agencies charged with providing financial relief or assistance to various groups of constituents .
Jesse Jones , chairman of the Reconstruction Finance Corporation , at work in his Washington , DC office in 1937 . George Butler of Houston , TX is pictured with him .
President Roosevelt took full advantage of the RFC ’ s ability to use its own sources of financing to augment the monies that successive Congresses appropriated for his various spending programs . He approved most of Chairman Jones ’ decisions , such as to lend more than $ 2.5 billion to the Commodity Credit Corporation and other agricultural financing agencies , to authorize $ 100 million for use by the RFC Mortgage Company and more than $ 111 million for the Federal National Mortgage Association , as well as to use $ 200 million to purchase all the stock of the Home Owners ’ Loan Corporation .
Throughout the 1930s , the RFC also functioned as FDR ’ s infrastructure bank . It dispersed more than $ 741 million to finance self-liquidating capital projects such as the Colorado River Aqueduct ($ 209 million ), the San Francisco-Oakland Bay Bridge ($ 78 million ) and part of the Pennsylvania Turnpike ($ 35 million ). It also provided funds for drainage , levee and irrigation efforts ($ 85 million ); rural electrification projects ($ 47 million ); and disaster relief efforts ($ 12 million ).
In 1937 , President Roosevelt called for the end of what had been intended to be a temporary lending agency . But another downturn in the economy prompted him to allow it to continue . So the RFC continued to support a variety of private industries and government agencies . Chairman Jones ’ February 2 , 1939 report to Congress on the RFC ’ s activities from its inception until that date detailed more than $ 13.2 billion worth of loans it authorized for thousands of borrowers in all 48 states . While distributing more than $ 10 billion in cash , it had also received more than $ 8.1 billion in loan repayments from its various categories of borrowers .
The Congresses that had frequently enabled the RFC to expand its role in helping stimulate the economy during the mid-1930s could hardly object to also giving it the freedom to support the government ’ s national defense programs in the early 1940s . In October 1940 , the RFC advanced $ 65.7 million to the Defense Homes Corporation — the first of thousands of companies , agencies and sovereign governments it helped throughout the war years . Moreover , in the interest of national defense , Congress empowered the RFC to fund an assortment of newly created government-owned subsidiary
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