Emergency Banking Act of 1933

Beginning on February 14, 1933, Michigan, an industrial state that had been hit particularly hard by the Great Depression in the United States, declared an eight-day bank holiday.^[1] Fears of other bank closures spread from state to state as people rushed to withdraw their deposits while they still could do so. Within weeks, all other states held their own bank holidays in an attempt to stem the bank runs, with Delaware becoming the 48th and last state to close its banks on March 4.^[2][3]

Following his inauguration on March 4, 1933, President Franklin Roosevelt set out to rebuild confidence in the nation's banking system and to stabilize America's banking system. On March 6, he declared a four-day national banking holiday that kept all banks shut until Congress could act. During this time, the federal government would inspect all banks, re-open those that were sufficiently solvent, re-organize those that could be saved, and close those that were beyond repair.

 

Fireside Chat 1 On the Banking Crisis

Roosevelt's first fireside chat on the Banking Crisis (March 12, 1933)

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A draft law, prepared by the Treasury staff during Herbert Hoover's administration, was passed on March 9, 1933. The new law allowed the twelve Federal Reserve Banks to issue additional currency on good assets so that banks that reopened would be able to meet every legitimate call. The Emergency Banking Act, an amendment to the Trading with the Enemy Act of 1917, was introduced on March 9, 1933, to a joint session of Congress, and was passed the same evening amid an atmosphere of chaos and uncertainty as over 100 new Democratic members of Congress swept into power determined to take radical steps to address banking failures and other economic malaise.

The EBA was one of President Roosevelt's first projects in the first 100 days of his presidency. The sense of urgency was such that the act was passed with only a single copy available on the floor of the House of Representatives and legislators voted on it after the bill was read aloud to them by Chairman of the House Banking Committee Henry Steagall. Copies were made available to senators as the bill was being proposed in the Senate, after it had passed in the House.

According to William L. Silber: "The Emergency Banking Act of 1933, passed by Congress on March 9, 1933, three days after FDR declared a nationwide bank holiday, combined with the Federal Reserve's commitment to supply unlimited amounts of currency to reopened banks, created 100 percent deposit insurance".^[4]

On March 12, the evening before banks began to reopen, FDR gave his first fireside chat, a national radio address explaining the alterations made by the federal government on the banking industry. Due to confidence in FDR and the proposed alterations, Americans returned $1 billion^[5] to bank vaults in the following week.

Much to everyone's relief, when the institutions reopened for business on March 13, 1933, depositors stood in line to return their stashed cash to neighborhood banks. Within two weeks, Americans had redeposited more than half of the currency that they had legally withdrawn before the bank suspension.

The stock market registered its approval as well. On March 15, 1933, the first day of stock trading after the extended closure of Wall Street, the Dow Jones Industrial Average gaining 8.26 points to close at 62.10; a gain of 15.34%. As of October 2024^[update], the gain still stands as the largest one-day percentage price increase ever. In hindsight, the nationwide Bank Holiday and the Emergency Banking Act of March 1933 are seen to have ended the bank runs that plagued the Great Depression.^[4]

One month later, on April 5, 1933, President Roosevelt signed Executive Order 6102 criminalizing the possession of monetary gold by any individual, partnership, association or corporation^[6][7] and Congress passed a similar resolution in June 1933.^[8]

This act was a temporary response to a major problem and remains in effect to this day. The 1933 Banking Act passed later that year presented elements of longer-term response, including the formation of the Federal Deposit Insurance Corporation (FDIC).

• Causes of the Great Depression
• Executive Order 6102
• Gold Clause Cases
• Great Contraction

• Dighe, Ranjit S. "Saving private capitalism: The US bank holiday of 1933." Essays in Economic & Business History 29 (2011). 42–57. online
• Edwards, Sebastian. "Gold, the Brains Trust, and Roosevelt." History of Political Economy 49.1 (2017): 1–30. online
• Kennedy, Susan Estabrook. The Banking Crisis of 1933 (U Press of Kentucky, 1973).
• Silber, William L. “Why Did FDR’s Bank Holiday Succeed?” Federal Reserve Bank of New York Economic Policy Review, (July 2009), pp 19–30 online
• Taylor, Jason E., and Todd C. Neumann. "Recovery spring, faltering fall: March to November 1933." Explorations in Economic History 61#1 (2016): 54–67.
• Wicker, Elmus. The Banking Panics of the Great Depression (Cambridge UP, 1996).
• Wigmore, Barrie. “Was the Bank Holiday of 1933 Caused by a Run on the Dollar?” Journal of Economic History 47#3 (1987): 739–755.

 

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Emergency Banking Relief Act

• Full Text of the Emergency Banking Act
• Documents on the Banking Emergency of 1933 available on FRASER