CIRCULAR NO. 4

RECONSTRUCTION FINANCE CORPORATION ITS POWERS AND FUNCTIONS UNDER THE
RECONSTRUCTION FINANCE CORPORATION ACT AND THE EMERGENCY RELIEF AND
CONSTRUCTION ACT OF 1932 DECEMBER 1, 1932 UNITED STATES GOVERNMENT
PRINTING OFFICE WASHINGTON: 1932 RECONSTRUCTION FINANCE CORPORATION

The Reconstruction Finance Corporation was created by the Reconstruction
Finance Corporation Act, approved January 22, 1932, and entitled "An act
to provide emergency financing facilities for financial institutions, to
aid in financing agriculture, commerce, and industry, and for other
purposes." The scope of the loan operations of the Corporation was
enlarged and its basic law amended in certain respects by the Emergency
Relief and Construction Act of 1932, approved July 21, 1932. The latter
act also authorized the Corporation to make funds available to the
several States and Territories for the relief of destitution, and
empowered it to create regional agricultural credit corporations in any
of the Federal land bank districts. The Corporation was organized on
February 2, 1932. Under the original act, the management of the
Corporation was vested in a board of directors consisting of the
Secretary of the Treasury (or, in his absence, the Under Secretary of
the Treasury), the Governor of the Federal Reserve Board, and the Farm
Loan Commissioner, as members ex officio, and four other directors
appointed by the President of the United States by and with the advice
and consent of the Senate. Because of the burden imposed by two offices
of large and growing responsibility, the Governor of the Federal Reserve
Board and the Farm Loan Commissioner requested that they be relieved of
membership on the board of directors of the Corporation, and the
Reconstruction Finance Corporation Act was amended accordingly,
effective at the close of July 31, 1932, by the Emergency Relief and
Construction Act of 1932. Under the act, as amended, the board of
directors consists of the Secretary of the Treasury (or, in his absence,
the Under Secretary of the Treasury), who is a member ex officio, and
six other directors appointed by the President of the United States by
and with the advice and consent of the Senate. The act provides that the
Corporation shall have succession for a period of ten years from January
22, 1932, the date the law was enacted, unless it is sooner dissolved by
an act of Congress. FINANCIAL INSTITUTIONS The Corporation is authorized
and empowered, under the provisions of section 5 of the Reconstruction
Finance Corporation Act, as amended, to make loans, upon the terms and
conditions stated in the law, to any bank, savings bank, trust company,
building and loan association, insurance company, mortgage loan company,
credit union, Federal land bank, joint-stock land bank, Federal
intermediate credit bank, agricultural credit corporation, livestock
credit corporation, organized under the laws of any State, the District
of Columbia, Alaska, Hawaii, Puerto Rico, or the United States,
including loans secured by the assets of any bank or savings bank that
is closed, or in process of liquidation, to aid in the reorganization or
liquidation of such bank, upon application of the receiver or
liquidating agent of such bank. It is provided that all loans made to
the above enumerated institutions shall be fully and adequately secured,
and that not more than $200,000,000 shall be used for the relief of
banks (including savings banks) that are closed or in the process of
liquidation. RAILROADS Section 5 of the Reconstruction Finance
Corporation Act, as amended, also authorizes the Corporation, upon the
approval of the Interstate Commerce Commission, to make loans to aid in
the temporary financing of railroads and railways engaged in interstate
commerce, to railroads and railways in process of construction, and to
receivers of such railroads and railways, when in the opinion of the
board of directors of the Corporation such railroads or railways are
unable to obtain funds upon reasonable terms through banking channels or
from general public and the Corporation will be adequately secured.
RELIEF OF DESTITUTION The Corporation is authorized by section 1 of the
Emergency Relief and Construction Act of 1932 to make available out of
the funds of the Corporation the sum of $300,000,000, under specified
terms and conditions, to the several States and Territories (i.e.,
Alaska, Hawaii, and Puerto Rico) to be used in furnishing relief and
work relief to needy and distressed people and in relieving the hardship
resulting from unemployment. Such sum is available for payment to the
Governors of the several States and Territories upon application
approved by the Corporation. Not more than 15 per cent of such sum may
be made available to any one State or Territory, and all amounts paid to
the Governors of States or Territories by the Corporation under this
authority must be reimbursed to the Corporation with interest at the
rate of 3 per cent per annum, either by making annual deductions,
beginning with the fiscal year 1935, from regular apportionments made
from future Federal authorizations in aid of the States and Territories
for the construction of highways and rural post roads, or through the
operation of agreements with States or Territories or with
municipalities or political subdivisions of States or Territories for
the repayment of the amounts paid under this section. Applications for
these funds, which are available until the expiration of two years after
July 21, 1932 (the date of the enactment of the law), may be made by the
Governor of any State or Territory. The act requires that the Governor
shall certify the necessity for such funds and that the resources of the
State or Territory, including moneys then available and which can be
made available by the State or Territory, its political subdivisions,
and private contributions, are inadequate to meet its relief needs. Any
portion of the amount approved by the Corporation for payment to the
Governor of a State or Territory may, at his request, with the approval
of the Corporation, be paid to any municipality or political subdivision
of such State or Territory if (a) the Governor makes as to such
municipality or political subdivision a certificate like that mentioned
above with respect to the State or Territory, and (2) such municipality
or political subdivision enters into an agreement with the Corporation
for the repayment to the Corporation of the amount so paid, with
interest at the rate of 3 per cent per annum, at such times, and upon
such other terms and conditions, as may be agreed upon between the
Corporation and such municipality or political subdivision. The amounts
paid to any municipality or political subdivision under this authority
may not be included in the amounts to be deducted from the
apportionments for the construction of highways and rural post roads
referred to above. SELF-LIQUIDATING PROJECTS Under the provisions of
section 201 (a) of the Emergency Relief and Construction Act of 1932,
the Corporation is authorized and empowered, at any time prior to
January 23, 1932: "(1) to make loans to, or contracts with, States,
municipalities, and political subdivisions of States, public agencies of
States, of municipalities, and of political subdivisions of States,
public corporations, boards and commissions, and public municipal
instrumentalities of one or more States, to aid in financing projects
authorized under Federal, State, or municipal law which are
self-liquidating in character, such loans or contracts to be made
through the purchase of their securities, or otherwise, and for such
purpose the Reconstruction Finance Corporation is authorized to bid for
such securities: Provided, That nothing herein contained shall be
construed to prohibit the Reconstruction Finance Corporation, in
carrying out the provisions of this paragraph, from purchasing
securities having a maturity of more than ten years; "(2) to make loans
to corporations formed wholly for the purpose of providing housing for
families of low income, or for reconstruction of slum areas, which are
regulated by State or municipal law as to rents, charges, capital
structure, rate of return, and areas and methods of operation, to aid in
financing projects undertaken by such corporations which are self
liquidating in character; "(3) to make loans to private corporations to
aid in carrying out the construction, replacement, or improvement of
bridges, tunnels, docks, viaducts, waterworks, canals, and markets,
devoted to public use and which are self-liquidating in character; "(4)
to make loans to private limited dividend corporations to aid in
financing projects for the protection and development of forests and
other renewable natural resources, which are regulated by a State or
political subdivision of a State and are self-liquidating in character;
and "(5) to make loans to aid in financing the construction of any
publicly owned bridge to be used for railroad, railway, and highway
uses, the construction cost of which will be returned in part by means
of tolls, fees, rents, or other charges, and the remainder by means of
taxes imposed pursuant to State law enacted before the date of enactment
of the Emergency Relief and Construction Act of 1932; and the
Reconstruction Finance Corporation is further authorized and empowered
to purchase bonds of any State, municipality, or other public body or
agency, issued for the purposes of financing the construction of any
such bridge irrespective of the dates of maturity of such bonds." For
the purpose of loans with respect to self-liquidating projects, the
Emergency Relief and Construction Act provides that a project is to be
deemed to be self-liquidating if such project will be made
self-supporting and financially solvent and if the construction cost
thereof will be returned within a reasonable period by means of tolls,
fees, rents, or other charges, or by such other means (other than by
taxation) as may be prescribed by the statutes which provide for the
project. All loans and contracts made by the Corporation in respect of
projects of the character referred to must be fully and adequately
secured and are subject to the conditions that no convict labor shall be
directly employed on any such project, that (except in executive,
administrative, and supervisory positions), so far as practicable, no
individual directly employed on any such project shall be permitted to
work more than thirty hours in any one week, and that in the employment
of labor in connection with any such project preference shall be given,
where they are qualified, to ex-service men with dependents. The
provisions of this section of the law apply with respect to projects in
Puerto Rico and the Territories to the same extent as in the case of
projects in the several States.