The RFC was Hoover's most important attempt to deal with the depression. It was proposed by Hoover and created by Congress in January 1932. The collapse in the value of assets combined with demands from panicky depositors to get their money out meant that many banks that were otherwise solvent, hoarded their money and refused to make loans. It was much like the Financial Crisis of 2008. The RFC... [more]
The RFC was Hoover's most important attempt to deal with the depression. It was proposed by Hoover and created by Congress in January 1932.
The collapse in the value of assets combined with demands from panicky depositors to get their money out meant that many banks that were otherwise solvent, hoarded their money and refused to make loans. It was much like the Financial Crisis of 2008.
The RFC could make loans to banks, insurance companies and railroads. The Emergency Relief and Construction Act of July 21, 1932, enlarged its power to allow for loans to state government and to farm agencies. The immediate aim was to restore confidence in financial institutions generally and encourage them to start lending again, prevent ruinous bankruptcies that would further destabilize the shaky economy, and--hopefully-- revive the economy through the restoration of credit.
The RFC was capitalized at $500 million (comparable in size to $75 billion in 2009), provided by the federal government, and it was empowered to sell $3.3 billion (comparable to $500 billion in 2009) of debentures. Through the end of the Hoover administration $2.2 billion was actually loaned to authorized borrowers (comparable to $350 billion). The RFC saved many railroads, banks, and insurance companies. Democrats limited its effectiveness by overly stringent security requirements for loans and by the decision of Congress to require public disclosure of borrowers, which virtually forced a bank to admit publicly it was in trouble.
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