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What is the Reconstruction Finance Corporation?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
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  • Last Modified Date: 21 June 2018
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The Reconstruction Finance Corporation (RFC) was a government agency established in the United States during the Great Depression to provide financial assistance designed to slow the rate of job losses and other economic problems. It became a key part of the New Deal and persisted through the Second World War. In 1953, Congress mandated closure of the agency, and in 1957, it was formally disbanded.

President Herbert Hoover was responsible for establishing the Reconstruction Finance Corporation in 1932, with the genesis of the agency lying in an address to Congress. The organization was provided with substantial funding and a mandate to provide assistance to failing banks, farmers, and some public works projects. It operated under a mandate of transparency, with an obligation to report recipients of aid and the amounts of grants. This later turned out to be a problem, as awareness that certain banks and other organizations were receiving money undermined consumer confidence.

With the election of President Franklin D. Roosevelt and the creation of the New Deal, the mission of the Reconstruction Finance Corporation shifted slightly. Roosevelt recognized that the organization could be a valuable tool for providing funding assistance for New Deal projects. A number of subsidiaries were created, including organizations like Fannie Mae that continue to persist. Almost 7,000 banks were assisted by the agency, along with farmers and numerous other needy organizations.

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In the Second World War, the Reconstruction Finance Corporation provided support for industry at home, including the development of an effective defense industry. It played a key role in developing military power for the United States by making funding available for defense research and contracting. With the close of the war, the usefulness of the organization began to be questioned and the process of determining which subsidiaries to retain and which to close began in preparation for closing down the Reconstruction Finance Corporation altogether.

This government agency played a key role in the economic recovery of the United States, which allowed the country to emerge as a superpower and economic powerhouse after the Second World War. This is a remarkable accomplishment, considering the fact that the agency was criticized for inefficiency, sluggish activity on some key issues, and policies that sometimes undermined its own work, such as the transparency requirement. Together with other policies enacted during the Depression, the Reconstruction Finance Corporation laid the groundwork for a number of agencies and policies that proved useful long after the economy had recovered.

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