In United States federal banking legislation, the Phelan Act of 1920, sponsored by Sen.
James D. Phelan
James Duval Phelan (April 20, 1861 – August 7, 1930) was an American politician, civic leader, and banker. He served as nonpartisan Mayor of San Francisco from 1897 to 1902. As mayor he advocated municipally run utilities and tried to protect ...
(D) of California, authorized progressive discount rates for any
Federal Reserve District bank that borrowed relatively large amounts from its Reserve bank.
The FED district bank was given the option to enforce or deny the provision. In FED districts that accepted progressive rates, each member bank was given a
line of credit
A line of credit is a credit facility extended by a bank or other financial institution to a government, business or individual customer that enables the customer to draw on the facility when the customer needs funds. A line of credit takes se ...
or normal re-discount. This measure helped the banks with the difficult transition 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.
1920 in American law
United States federal banking legislation
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