Under President Herbert Hoover




The first RFC president was the former US Vice President Charles Dawes. He soon resigned to attend to his bank in Chicago, which was in danger of failing, and President Herbert Hoover appointed Atlee Pomerene of Ohio to head the agency in July 1932. The presidency of the RFC thus switched from a Republican to a Democrat. Hoover's reasons for reorganizing the RFC included: the broken health and resignations of Eugene Meyer, Paul Bestor, and Charles Dawes; the failure of banks to perform their duties to their clientele or to aid American industry; the country's general lack of confidence in the current board; and Hoover's inability to find any other man who had the ability and was both nationally respected and available. (Shriver 1982)

Like the Federal Reserve, the RFC tended to bail out the banks that benefited the public the most. Butkiewicz (1995) shows that the RFC initially succeeded in reducing bank failures, but the publication of the names of loan recipients beginning in August 1932 (at the demand of Congress) significantly reduced its effectiveness, because it appeared that political considerations had motivated certain loans. Partisan politics hindered the RFC's efforts, though in 1932, monetary conditions improved because the RFC slowed the decline in the nation's money supply.

The original legislation establishing the RFC did not limit it to lending to financial institutions; it was also authorized to provide loans for railroad construction and crop lands. An amendment passed in July 1932 allowed the RFC to provide loans to state and municipal governments. The purpose of these loans was to finance projects like dams and bridges, and the money would be repaid by charging fees to use these structures. To help with unemployment, a relief program was created that would be repaid by tax receipts.

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