Financial History 144 Winter 2023 | Page 23

cooperation , President Hoover ’ s Secretary of the Treasury Ogden L . Mills and his economic team remained at their posts to help FDR ’ s Treasury Secretary-Designee William H . Woodin and his team craft what they believed to be the appropriate policies . After considering numerous suggestions from a range of people with different agendas , the group developed a proposal for the President to offer Congress on the afternoon of March 9 . An accompanying message from President Roosevelt urged the legislators to approve the bill quickly . His Emergency Banking Act had five titles :
Title I retroactively certified FDR ’ s authority under the Trading with the Enemy Act to declare the banking holiday . It also amended the Federal Reserve Act to give the President the authority to work with the Secretary of the Treasury and the Federal Reserve System to regulate various activities of the banking system in time of a national emergency .
Title II was labeled the Bank Conservation Act . It empowered the Comptroller of the Currency to examine the condition of all banks , and to establish the procedures under which sound ones would be allowed to resume their normal activities . It also described the nature of the conservators the Comptroller would be authorized to appoint to oversee the activities of banks not considered sound enough to re-open .
Title III authorized national banks to sell preferred stock to the public . Moreover , it authorized the Reconstruction Finance Corporation to purchase such stock in any bank needing funds to revitalize its capital structure .
Title IV broadened the Federal Reserve Act by permitting Reserve banks to issue a new type of emergency currency ( Federal Reserve bank notes ) in virtually unlimited quantity to any financially sound bank suffering an unsustainable run on its deposits .
Title V appropriated $ 2 million to carry out the act .
The Senate debated the bill for less than seven hours before passing it on a 73 to 7 vote . The House of Representatives acted even more quickly , approving the bill on a voice vote after considering it for less than two hours . The President signed it into law at 8:30 that night . Two hours later , he extended the banking holiday until further notice . The next day , he issued a press release stating that the banks found to be sound after their examination by the Comptroller of the Currency would be reopening in stages from March 13 through March 15 . On March 11 , the President announced his intention to give a radio address about the banking situation on the night of March 12 .
From a distance of 90 years , it is hard to fully appreciate the positive impact of the President ’ s 13-minute Sunday night address . In common everyday language , he told his audience of more than 60 million listeners ( roughly half the country ’ s population ) that conditions would be better within a very short time . Without explaining the details of any regulatory examination process , he assured them that banks found to be sound would be reopening as early as a few days hence . He also noted the imminent availability of $ 2 billion worth of the new Federal Reserve bank notes that any sound bank could use to supplement its own resources and grant customers ’ requests for withdrawals . It was not a formal speech about far-reaching policy programs but a conversation about a temporary banking abnormality and the government ’ s actions to straighten it out . Even more importantly , it was a heartfelt expression of the President ’ s confidence in the ability of the American people to banish their fear about the situation and do their part to overcome the banking system ’ s difficulties .
The public rather quickly demonstrated their confidence in the President ’ s actions . They returned about two-thirds of the extra cash they had recently withdrawn from their banks . And they flooded the White House with more than 450,000 letters thanking the President for his description of the problem and expressing their confidence in his plans for addressing it . Conditions in the industry appeared to justify that confidence .
Behind the scenes , banking authorities at the federal and state levels were quite aware that they had neither the time nor the resources to effectively examine more than 20,000 institutions to assess their soundness . But they used previous examination reports , the knowledge of banking superintendents and persuasive arguments from local politicians to permit more than 13,000 banks with about 90 % of the country ’ s deposits to re-open on schedule . The RFC aided many banks ’ solvency with loans and investments exceeding $ 480 million . And the $ 2 billion worth of new Federal Reserve bank notes were generally not needed because confident consumers no longer overwhelmed their banks with requests for large withdrawals .
The President and Congress were not finished with legislative and administrative actions to correct some of the problematic aspects of the banking industry ; and the Great Depression was not even close to ending . But the crisis that threatened the very idea of having a free-market system of competition for such an important part of the economy was over . Historians still marvel at the ability of the new President to persuade Congress to quickly take important remedial actions and to assuage the public ’ s concerns about the health of the banking industry .
Michael A . Martorelli is a Director Emeritus at Fairmount Partners and a frequent contributor to Financial History . He earned his MA in History from American Military University .
Awalt , Francis Gloyd . “ Recollections of the Banking Crisis in 1933 .” The Business History Review . Vol 43 , No . 3 . Autumn 1969 .
Ballantine , Arthur A . “ When All the Banks Closed .” Harvard Business Review . Vol XXVI , No . 2 . March 1948 .
Dighe , Ranjit S . “ Saving Private Capitalism : The US Bank Holiday of 1933 .” Essays in Economic and Business History 29 . 2011 .
Federal Reserve Board . Annual Report 1933 . Washington , DC : Government Printing Office . 1934 .
Kennedy , Susan Estabrook . The Banking Crisis of 1933 . Lexington , KY : University Press of Kentucky . 1933 .
Kiewe , Amos . FDRs First Fireside Chat : Public Confidence and the Banking Crisis . College Station , TX : Texas A & M University Press . 2007 .
Silber , William L . “ Why Did FDR ’ s Bank Holiday Succeed ?” FRBNY Economic Review . July 2009 .
www . MoAF . org | Winter 2023 | FINANCIAL HISTORY 21