Phelen Act of 1920
Encyclopedia
Sponsored by Sen. James D. Phelan
(D) of California, the act authorized progressive discount rates for a Federal Reserve District bank that borrowed relatively large amounts from its Reserve bank. The FED district bank had the option to enforce or deny the provision. In FED districts that accepted progressive rates, each member bank was given a line of credit
or normal re-discount. This was another measure to help the difficult transition for banks from wartime to peacetime. It bought member banks time to reorganize and renegotiate loans given to large defense contracting firms that would no longer be manufacturing high priced war munitions and material meant for sale to the government. With the government no longer purchasing, major firms would no longer be in a position to pay back large loans, and thus the banks that had lent them money to finance heavy production needed Federal assistance. This act fulfilled that function.
James D. Phelan
James Duval Phelan was an American politician, civic leader and banker.-Early years:Phelan was born in San Francisco, the son of an Irish immigrant who became wealthy during the California Gold Rush as a trader, merchant and banker. He graduated from St...
(D) of California, the act authorized progressive discount rates for a Federal Reserve District bank that borrowed relatively large amounts from its Reserve bank. The FED district bank had the option to enforce or deny the provision. In FED districts that accepted progressive rates, each member bank was given a line of credit
Line of credit
A line of credit is any credit source extended to a government, business or individual by a bank or other financial institution. A line of credit may take several forms, such as overdraft protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase of...
or normal re-discount. This was another measure to help the difficult transition for banks from wartime to peacetime. It bought member banks time to reorganize and renegotiate loans given to large defense contracting firms that would no longer be manufacturing high priced war munitions and material meant for sale to the government. With the government no longer purchasing, major firms would no longer be in a position to pay back large loans, and thus the banks that had lent them money to finance heavy production needed Federal assistance. This act fulfilled that function.