Banking 1929-1941

Introduction

America was in the depths of the Great Depression in early 1933. Bank "moratoria," or closures, rolled across the country beginning in 1930. Bank officials called moratoria "bank holidays," but there was no holiday spirit evident in the eyes of citizens standing before a bank entrance on whose door was a note announcing "closed by the Board of Directors until further notice." Panic, anger, and disbelief were the emotions experienced at the loss of one's entire savings. The American banking industry was in serious trouble and everyone knew it.

On Valentine's Day, 1933, the governor of Michigan proclaimed an eight-day "bank holiday" throughout the state, freezing 900,000 depositors' funds in the state's bank vaults. The closure was so unnerving, depositors throughout the country attempted to withdraw cash from their banks. "Holidays" spread to Indiana, Maryland, Arkansas, and Ohio. In the early morning hours of the day, as Franklin Delano Roosevelt was inaugurated the thirty-second president of the United States, the banks in Illinois and New York were closed. As dawn broke on March 4, 1933, the nation's banking system had no pulse.

Over the last two hundred years the United States banking system experienced a succession of crises. Each crisis weakened public confidence and prompted cries for reform. The bouts of bank failures reached a climactic point in 1933. Nearly 40 percent of America's banks had failed or had to merge. U.S. banks were reduced from 25,000 to 14,000 in the late 1920s. The prevalent thought of the day fostered by congressional hearings was that the failures were in large part due to unscrupulous bankers and banks investing in securities (stocks and bonds). The belief that banking failed due to stock speculation proved to be a misconception.

By 2000, with hindsight as an ally, the structure of the American banking system was recognized as the main weakness causing so many banks to close their doors. Although some large city banks did fail, 90 percent of the failed banks were small unit banks with few assets. Unit banks attempted to carry out an array of services operating out of only one location. Nationwide branch banking was prohibited. As the Depression wore on, more businesses failed, workers lost their jobs, and bank loans were not repaid. People withdrew their cash to live on, instead of saving it. Banks could not keep up with the demands for withdrawal of funds. Americans lost all confidence in the banking system and turned to Washington for answers.

By the time Franklin Delano Roosevelt was inaugurated, the banking system was paralyzed. Roosevelt took control and was able to stabilize the situation in eight amazing days between March 4, 1933, and the evening of March 12. Key actions of those days were the declaration of a nationwide "bank holiday" to allow breathing room for all, passage of the Emergency Banking Act, and President Roosevelt's first fireside chat, broadcast over radio to millions of anxious Americans. These actions restored public confidence in banks. On March 13, as banks began to reopen, deposits exceeded withdrawals and the American banking system was saved.

Building on the momentum of those first few days, Congress passed the Banking Act of 1933, commonly known as the Glass-Steagall Act, in June, and later the Banking Act of 1935.

The Emergency Banking Act had stopped the bleeding of American banks and restored confidence. The recovery and reform banking acts of 1933 and 1935 laid the foundation for far-reaching changes in the U.S. banking industry, including the establishment of the Federal Deposit Insurance Corporation (FDIC). In keeping with other New Deal legislation expanding the government into all walks of American life, the federal government became an increasingly important player in the oversight and regulation of the U.S. banking system.

Chronology:

1920–1929:

An average of 588 banks fail each year foreshadowing trouble.

October 28, 1929:

The stock market crashes.

1930:

The number of bank suspensions skyrockets to 1,300.

December 11, 1930:

The Bank of United States in New York City closes.

1931–1932:

More than 3,600 banks suspend operations.

January 22, 1932:

The Reconstruction Finance Corporation (RFC) becomes law.

March 4, 1933:

Franklin Delano Roosevelt is inaugurated as the thirty-second U.S. president.

March 5, 1933:

President Roosevelt calls for Congress to meet in a special session on Thursday, March 9, 1933.

March 6, 1933:

At 1:00 AM President Roosevelt orders a nationwide "bank holiday" from Monday, March 6, through Thursday, March 9.

March 9, 1933:

Congress convenes and passes the Emergency Banking Act of 1933.

March 12, 1933:

In his first fireside chat, President Roosevelt calmly and confidently speaks to the American public about the country's banking crisis.

March 13, 1933:

Banks begin to reopen.

March 15, 1933:

Banks controlling 90 percent of the country's banking resources have reopened.

June 16, 1933:

President Roosevelt signs the Banking Act of 1933 (Glass-Steagall Act) into law.

August 23, 1935:

President Roosevelt signs the Banking Act of 1935 into law.

Issue Summary

Bank failures during the 1920s were considered local failures. They did not tend to produce any general loss of public confidence or produce banking panics of nationwide importance. In fact they went largely unnoticed by the American public, reveling in a seemingly strong capitalist business climate and a wildly escalating stock market. The 1920s failures were, however, symptomatic of the unhealthy state of the U.S. banking system.

The optimism of the 1920s came crashing down on October 28, 1929, when the stock market plummeted. The Great Depression began that Fall 1929. Growing numbers of businesses failed, employees lost their jobs, and farmers lost their farms. Many businesses and individuals, their incomes declining or disappearing completely, could not make payments on loans and mortgages (home loans). Further, the "collateral" that businesses and individuals had used to back up loans had lost much of its value. Collateral is something of value that a borrower agrees to hand over to the lender if the loan is not repaid. The deepening Depression also forced many depositors to withdraw their savings. Banks that were unable to collect on

many loans had great difficulty meeting these withdrawal demands. Not surprisingly in such an unsteady financial climate, banks began to fail.

Bank Suspensions—1930

Banks began to close their doors in record numbers. In 1929, 651 banks suspended operations. In 1930 the figure skyrocketed to more than 1,300. Many banks forced out of business were small rural unit banks. Bank suspensions quickly spread over large geographic areas and into the cities.

In November and December 1930, after the stock market crash and the run on banks by a panicked public, banks experienced the sharpest increase in closures. In November a large Nashville, Tennessee, investment banking house, Caldwell and Company, collapsed due to poor performance on loans and investments. The collapse spread panic through Tennessee, Arkansas, Kentucky, and North Carolina, engulfing over 120 banks.

In December one of the most disastrous failures in American banking history occurred. The New York State Commissioner, on the morning of December 11, 1930, closed the Bank of United States in New York City. Although a private bank, the bank's name alone spawned fears that the whole United States banking system would fail. New York City's Bank of the United States had 57 branches throughout the city and some $220 million deposited in 440,000 accounts. More than three-fourths of the 440,000 depositors had accounts of less than $400. Many were Jewish immigrants, left unemployed in the wake of the stock market crash. Disillusioned and confused, depositors had no warning that inadequate supervision and mismanagement by those who owned and controlled the bank would lead to the loss of their savings. Citizens across the nation questioned the safety of their deposits. Two other large city banks closed their doors in December 1930. The Bankers' Trust of Philadelphia closed on December 22 and the Chelsea Bank and Trust of New York City closed on December 23.

The failures caused public confidence to sink to new lows. Strong banks struggled to solidify their positions. They made no effort to bail out the weaker banks. Depositors could not distinguish strong banks from weak banks and distrusted them all. Throughout the nation runs on banks accelerated, as did the private hoarding of gold and cash.

Nothing exhibited the public's lack of confidence in banks during the Depression more than bank runs. Runs began when depositors feared their bank was unsound. Rather than risk losing their savings, depositors rushed to withdraw their money. A mere rumor of trouble could start a run. Since banks do not keep enough cash on hand to cover all depositors, those first in line got their cash, but those last in line did not. Runs often ended with a bank's collapse.

Since few companies provided retirement pensions for workers in the 1920s and 1930s, many workers used banks to house their life savings. When banks failed many individuals were left with nothing.

Washington Gets Involved

During the boom of the 1920s bankers were thought of as thrifty, smart, hardheaded businessmen helping Americans reach their financial goals. By the early 1930s, Americans were suspicious and distrustful of these same men. Many felt that the unethical accumulation of wealth by some bankers was a root cause of the Great Depression. Hundreds of thousands of Americans now hoarded cash and gold. They preferred keeping it under mattresses and buried in cans in the back yard to depositing it in America's financial institutions. The money in circulation, called the money supply, shrank dramatically. No longer confident in bankers, the public turned to Washington for bank reform.

As early as 1929, President Herbert Hoover (served 1929–1933), in his annual message to Congress, called for Congress to consider revising the banking laws. He emphasized the lack of unity between national and state banks and the debates among bankers over branch banking. Hoover called for the formation of a joint committee of congressmen of both houses and other federal officials to investigate the entire banking system. Especially interested were two congressmen, Senator Carter Glass and Representative Henry B. Steagall. Senator Glass had served as a representative in the House of Representatives from 1902 until 1918. As chairman of the House Committee on Banking and Currency he "fathered" the Federal Reserve Bank Act of 1913. Between 1918 and 1920, Glass served as secretary of treasury under Woodrow Wilson. He resigned that position in 1920 to accept an appointment to the U.S. Senate, where he remained for 28 years. Among his many banking interests, Glass was particularly concerned with the banking system as it related to speculative investments in stocks. Speculative investing refers to buying stocks or bonds in hopes of making a large profit. This type of investing is considered very risky.

In 1930 Representative Steagall, elected to the House in 1914, became chairman of the House Committee on Banking and Currency, the same committee that Glass once chaired. Steagall's chief focus was federal deposit insurance, which was designed to safeguard the bank deposits of individuals. He had been a proponent of deposit insurance since the early 1920s, but had had no success enacting it.

Despite Hoover's request, no joint committee was established, but both the Senate and the House began banking studies in Spring 1930. In the Senate a subcommittee of the Banking and Currency Committee, with Senator Glass as chairman, began hearings. Steagall's House Banking and Currency Committee also initiated hearings to consider the entire banking situation. From the White House, President Hoover attempted to mobilize the banking community. In October 1930 he urged cooperation between bankers and federal officials to devise better policies to end the crisis.

As the state of banking deteriorated in 1931, federal bank authorities—the Federal Reserve Board and Treasury officials—demanded action from bankers and Congress. The Federal Reserve maintained a liberal lending policy and pleaded with banks to make loan money available to customers. But banks were determined to preserve what "liquidity" they had left. Liquidity, in banking terms, means being able to meet the cash needs of depositors wanting to withdraw funds. Banks faced the threat of depositors caught in the Depression continuing to withdraw funds for living expenses or joining in massive runs, eliminating the bank's liquidity. The value of collateral backing up existing loans continued to slide. Many businesses and individuals defaulted (did not keep up payments) on their loans. So banks defended their liquidity by keeping credit tight, refusing new loans, and halting investments.

Hearings continued in Congress in 1931, during which three major issues surfaced: (1) bank involvement with stock speculation; (2) federal deposit insurance; and (3) increased federal regulation of the banking industry.

Banks and Stock Speculation

Bank involvement with stock speculation surfaced as a concern in 1929, even before the stock market crash. As early as February 1929, the Federal Reserve Board warned banks against using Federal Reserve funds for loans to "affiliate" companies or individual brokers, who in turn used the money for speculating in the market. An affiliate is a firm closely tied to another firm; in this case, to a bank. Despite warnings, the loans continued. Most of the complex dealings between banks and their affiliates that purchased and sold stocks were legal under state laws. Banks could take advantage of the highly profitable "securities" business through these affiliates. The term securities refers to stocks and bonds.

Senator Glass, heading the Senate Banking and Currency Committee hearings, passionately believed that banks should not engage in securities speculation. He believed it was harmful to the Federal Reserve System since its funds were being used for risky speculation. He viewed stock market speculation by banks as irresponsible and contrary to the rules of good banking. He wanted "commercial" banking and "investment" banking separated. Commercial banks are those that accept deposits from customers and make personal, business, and industrial loans. Investment banking or securities banking activity consists of investing in stocks and bonds. Glass' hearings were directed at uncovering evidence of wrongdoing, in hopes of gathering support for separation of commercial and investment banking. He was successful. Soon many legislators became convinced that banking activities had to be completely separated from securities investment speculation. Likewise, as the hearings revealed cases of bank mismanagement of funds, the public became outraged. Although the mismanagement was carried out by only a few, the public's distrust of all bankers swelled. Bankers, on the other hand, thought the stock speculation issue was blown out of proportion. They argued that control over securities investment could be achieved through the banking industry's own self-regulation. They wanted no new laws that took management decisions away from them.

Federal Deposit Insurance and Regulation

Deposit insurance was clearly the most controversial reform issue. Numerous bills were drafted and introduced into Congress to provide a measure of guarantee for deposits. Representative Steagall was the primary authority in Congress on deposit insurance. With the increasing crisis, public pressure for some form of deposit insurance gained popularity. Bankers strongly opposed deposit insurance. They felt that agreeing to deposit insurance was like agreeing to ensure everyone against all evils—impossible. Large banks, confident of their own ability to meet depositors' demands, believed the insurance plan would result in their having to cover losses to depositors of weak banks.

Throughout Senate hearings bankers almost unanimously fought against increased federal regulation. Bankers wanted no part in centralized power of the Federal Reserve Board. As the crisis deepened, however, the possibility of increased government control grew. Many viewed the basic problem to be the "hodgepodge" dual banking system of the United States and the many small unit banks. Lack of unity, plus self-interest for only local concerns, contributed to the national crisis. The banking community was unprepared to offer its own solutions for the declining situation, and it was inevitable that the federal government would step in.

By January 1932, when Hoover's voluntary schemes and Congress' investigations had led only to inaction, Hoover suggested an emergency step. He recommended establishment of the Reconstruction Finance Corporation (RFC). The RFC, headed by Jesse H. Jones, was endowed with up to $2 billion in working capital to make low interest loans to banks. Hoover expected the RFC loans to restore bankers' confidence to in turn make loans to business. Recovery would follow. On January 22, 1932, the RFC became law.

While Congress feverishly considered more substantial banking legislation, the RFC began operation. Bank suspensions fell to 68 in April 1932, as opposed to the high of 522 failures in October 1931. Nevertheless, currency hoarding continued by individuals and, disappointingly, banks did not ease credit by making loans.

More About…Federal Deposit Insurance Corporation

The most enduring and accepted agency to emerge from New Deal banking reform legislation was the Federal Deposit Insurance Corporation (FDIC). Originally proposed by Congressman Henry Steagall of Alabama, it became law on June 16, 1933, when President Franklin D. Roosevelt signed the Banking Act of 1933. Under provisions of the act, a Temporary Deposit Insurance Fund would begin operation on January 1, 1934. The permanent FDIC started up on July 1, 1935. Only banks certified as sound could join. Sound banks were well capitalized, and liabilities did not exceed assets. Originally, individual accounts up to a maximum of $2,500 were insured. That figure was later increased to $5,000.

The FDIC was an immediate and unparalleled success. It imposed a measure of unity on the U.S. dual banking system, returned depositor confidence, all but eliminated bank runs and failures, and protected the nation's money supply from wild fluctuations. By 1935 more than 14,400 banks had joined the FDIC, and bank failures dropped to 44 in 1934, and 34 in 1935.

By 2000 about 98 percent of all commercial banks were FDIC members. Individual accounts were insured up to $100,000. Each member bank pays a fee based on its average annual total deposits. The FDIC insurance fund is built up through these annual assessments. Should this fund ever prove insufficient to meet the needs of depositors, the FDIC is authorized to borrow up to $5 billion directly from the U.S. Treasury.

In 2000 FDIC operations were directed from Washington, DC, by a three-member board of governors. Regional FDIC offices existed throughout the United States. The FDIC also administered the Savings Association Insurance Fund (SAIF), which insures deposits of Savings and Loans up to $100,000.

Congress responded to the crisis by passing the Federal Home Loan Act of 1932. The act created the Federal Home Loan Bank Board (FHLBB) to oversee the operations of savings and loan banking institutions. Savings and loans made mortgage loans for home purchases. As more people could not make their loan payments, savings and loans failed—1,700 in the 1930s. The Federal Home Loan Bank Board did not have an immediate effect. Depositors lost all their money because deposit insurance did not exist. It would be two years before Congress passed the National Housing Act of 1934, creating the Federal Savings and Loan Insurance Corporation (FSLIC) to insure each savings and loan account up to $5,000. The Housing Act also created the Federal Housing Administration (FHA) to protect mortgage lenders by insuring full repayment of mortgages if individuals could not make the payments.

The Election of 1932

Conditions were rapidly growing worse by the summer of 1932 despite Hoover's and Congress' efforts. Over 2,200 banks failed in 1931, and 1,400 more would fail in 1932. In November the nation turned its eyes to the task of electing a new president. Hoover's unpopularity virtually assured anyone running on the Democratic ticket a victory. The Democratic candidate was Franklin Delano Roosevelt. The Depression was the key issue of his campaign, with the banking situation near the top of the concerns list. The Democratic platform, which Roosevelt endorsed in its entirety, called for rigid supervision of national banks, a complete separation of commercial banks from investment banking, and a restructuring of the lending practice by the Federal Reserve Bank. Hoover's conservative views on banking were well known. By contrast Roosevelt's speeches sounded radical to bankers, but the public sensed hope in the words of the personable governor from New York. Roosevelt was elected the thirty-second president of the United States in November 1932. He would not be inaugurated until March 4, 1933. The four-month interim seemed to be an eternity to Americans hoping for relief from the new president. Hoover and his Republicans had no leadership capability left. Congress disagreed amongst itself. The shadows of disaster grew longer.

Bank Holidays

Since the early days of the Depression local bank "moratoria" had been used to help banks that were facing runs. A moratorium is a legal suspension of activity. This was normally done by declaration of a "bank holiday," a period in which a bank would be closed for business. In November 1932 the number of "holidays" increased, fueling growing alarm. Nevada declared a statewide holiday and, in the next two months, the West experienced an epidemic of bank failures. Early in 1933 Louisiana's governor declared a bank holiday. The real panic struck on St. Valentine's Day, February 14, 1933, when the governor of Michigan declared an eight-day bank holiday. Michigan's holiday tied up the funds of 900,000 depositors and froze $1.5 billion in bank deposits.

President Hoover, in a ten-page handwritten letter to President-elect Roosevelt, urged Roosevelt to make an early statement reassuring the public that the banks were fundamentally sound. Roosevelt replied that the bank situation was so bad that no "mere statement" would help. Further, Roosevelt acknowledged that "very few financial institutions anywhere in the country are actually able to pay off their deposits in full, and the knowledge of this fact is widely held" (quoted in Helen Burns, The American Banking Community and New Deal Banking Reforms, 1933–1935, 1974). Roosevelt issued no statement. Meanwhile, "bank holidays" spread to Indiana on February 23, Maryland on February 25, Arkansas on February 27, and Ohio on February 28.

The banking pulse had all but stopped. Hoover refrained from acting independently, and Roosevelt felt he could not act cooperatively with Hoover. All committees, hearings, and investigations had failed. Neither bankers nor Congress had come up with a workable solution. Reform banking legislation lay buried in Senate and House committees.

By March 2, 1933, twenty-one states had declared moratoria. Around the clock conferences were held at the White House, Treasury Department, Federal Reserve, and banks throughout the country. Members of the new Roosevelt administration began work as soon as they arrived in Washington. Hoover administration members remained at their posts to help. It was hoped that at least closures of large banks in financial centers could be avoided.

On Friday, March 3, 1933, Roosevelt went to the White House for the traditional courtesy call on the outgoing president. Hoover and Roosevelt conferred about a nationwide bank holiday but by nightfall no statement had been made. At 3:00 AM, March 4, the governor of Illinois closed his state's banks. At 4:20 AM the governor of New York proclaimed a two-day holiday.

Eight Amazing Days

At dawn on Saturday, March 4, 1933, the nation's banks were paralyzed. At 1:08 PM Franklin Delano Roosevelt was inaugurated as president of the United States. In a strong, clear voice, President Roosevelt spoke to the anxious nation. In his inauguration speech he chided bankers, calling them "money changers" and saying they, "have fled from their high seats in the temple of our civilization." He announced that "there must be an end to speculation with other people's money, and there must be provision for an adequate sound currency." Roosevelt asked Congress for "broad executive power to wage a war against the emergency, as great as the power that would be given to me, if we were in fact invaded by a foreign foe" (quoted in Burns, pp. 40–41).

More About…Bank Run Psychology

A major responsibility of a bank is to allow depositors to withdraw their funds whenever they desire. No bank, however, keeps enough cash readily available to satisfy its depositors if they all demanded their money at the same time. This situation—when many depositors want their money back at the same time—is known as a bank "run." Experience tells bankers that runs rarely occur. When people are confident they can withdraw funds at any time, they leave most of their funds in the bank until needed. Banks can therefore loan or invest a large percentage of funds deposited with them.

Why do banks' depositors suddenly line up outside of their bank and demand their money in cash? Two theories try to explain the panic phenomenon. In one, panics are seen as a kind of mass hysteria. They begin when depositors think other depositors are going to withdraw all their money. The bank works on a first-come-first-serve basis, so those first in line get their money. Those last do not. No study explains why depositors suddenly fear other depositors will withdraw, but in the 1930s a bank experiencing a run often collapsed.

In the second theory panics result from perceptions that the overall banking system is unsound. Depositors cannot distinguish the risk of one bank from another so they distrust all banks. This belief of unsoundness throughout an entire system sparks withdrawals of cash from banks within the system.

What put an end to the bank runs of the 1930s? The Federal Deposit Insurance Corporation (FDIC). The FDIC, established under the Banking Act of 1933, protected depositors from bank failures. If an insured bank fails, the FDIC pays the claim of each depositor up to $100,000. Often, with FDIC assistance, other banks have assumed all the deposits of failed banks. By 2000 virtually no depositor had incurred loses.

As soon as the inauguration ended, senators returned to the Senate chamber and immediately approved Roosevelt's cabinet appointments. A few hours later, in an unprecedented ceremony, the entire Cabinet was sworn in. Meetings at the White House and the Federal Reserve continued non-stop for the rest of the day. Leading bankers, those "money changers," were told to come to Washington the next day, Sunday, March 5. President Roosevelt bowed out of the inaugural balls that evening.

William Woodin, the new treasury secretary; Raymond Moley, chief of Roosevelt's campaign "brain trust" and now an assistant secretary of state; Ogden L. Mills, outgoing treasury secretary; and Arthur Bal lantine, outgoing treasury under-secretary, had been meeting since Thursday, March 2. They agreed that the only immediate way to halt the bank crisis was to declare a nationwide bank holiday to allow everyone some breathing room. When it became evident on March 5 that the hastily gathered bankers had no plan of their own to end the emergency situation, President Roosevelt made his decision. That evening Roosevelt issued his first proclamation, which summoned Congress to convene in an extraordinary session on Thursday, March 9. Treasury Secretary Woodin had agreed to have emergency banking legislation ready on March 9. Then at 1:00 AM Monday, March 6, believing the American banking system could not withstand the strain of another day, Roosevelt ordered a bank holiday to extend across the nation from Monday, March 6 through Thursday, March 9.

For the nation the holiday ushered in immense relief. At least for the moment the long economic descent was at a full stop. People rallied together in their predicament of not having access to their money. They wrote out IOU's, accepted scrip (printed IOUs), made jokes, and adjusted as cheerfully as they could to the bankless economy.

If banking was to be saved, however, it would be done in the halls of the U.S. Treasury, where tense discussions continued. Woodin, Mills, Ballantine, and George Harrison of the New York Federal Reserve Bank are largely credited with putting together the emergency bank bill. The provisions of the bill, for the most part, actually originated in the Hoover administration during 1931, 1932, and 1933. After an impassioned five days the bill was ready for passage. Congress convened at noon on Thursday, March 9. The president sent a strong message for immediate action. Representative Steagall read the provisions of the bill aloud to members of the House. Shortly afterward, House members shouted, "Vote! Vote!" The bill that most members had never even seen passed unanimously. Meanwhile, the Senate, growing impatient waiting for printed copies of the bill, substituted the House version, and passed the bill 73 to 7, just before 7:30 PM. An hour later the Emergency Banking Act of 1933 was at the White House for Roosevelt's final signature. The entire process was completed in less than eight hours. Roosevelt then extended the bank holiday until Monday, March 13, to allow time to determine which banks could reopen.

Title I of the newly enacted Emergency Banking Act legalized Roosevelt's decision to declare a nationwide bank holiday. Title II dealt with the reorganization of the thousands of closed banks throughout the United States. It was based on the Bank Conservation Act, a bill that had not made it through Congress earlier in the year. Title III rejuvenated the RFC, authorizing it to purchase banks' preferred stock to provide them with long-term investment funds. The act also gave the president complete control of gold movements and made the hoarding of gold illegal. The act was passed out of necessity in a crisis atmosphere, but it was conservative legislation. It was a disappointment to those who had listened to the anti-bank rhetoric of Roosevelt's inaugural address and hoped for radical change. The bankers had feared radical changes. Despite the wording in his inaugural speech, Roosevelt's conservative handling of the banking crisis was simply in keeping with his own beliefs, which proved to be much more conservative than observers had originally thought.

On Friday, March 10, gold hoarders by the thousands lined up before regional Federal Reserve Banks. They were bringing back their treasure, which had suddenly become contraband. By Saturday night the Federal Reserve System had recovered $300 million in gold—enough to back up $750 million in new currency.

More About…A Moneyless Society

What would it be like to wake up and find out that the government had shut down all the banks, and the only cash available was what was in your wallet, or pockets, or "piggy" bank. Would out-of-control mobs roam the streets smashing store windows and taking all they could carry? Would families hide their jewelry and silver flatware? Would grocers hold off hungry crowds with shotguns?

Nothing like these scenarios played out on March 6, 1933, that historic Monday when all banks in America did close. No doubt some people rushed to the banks to see if they really were locked up, but for the most part people were relieved. President Roosevelt, at least for the moment, had stopped the bank runs. People actually laughed and joked about their common dilemma.

Experiences of comedy and practicality played out. Stranded salesmen hawked anything they had—the contents of their suitcases, even shoes, for a train fare home. Promoters of a Madison Square Garden boxing tournament accepted any usual item for admission. Employers postdated paychecks. Grocers, drugstores, gasoline stations, and hotels operated on credit. One of the most critical problems to develop was the inability to make change. If you needed bus fare but all you had was a $20 bill, bus drivers could not make change. Scrip, or paper IOUs, showed up in all forms in various communities. Bus tokens, foreign coins, and postage stamps all became part of the strange moneyless society.

Monday, March 13, when banks began reopening, came none too soon. In communities such as Detroit, where the bank holiday lasted four weeks, the humor in the situation began to wear off. Few wage earners could afford to miss many paydays. Just raising carfare for work or school had to be an ingenious endeavor. Relief applications poured in, and some began to go hungry, unable to cash their paychecks. The reopening of the banks helped stop this snowball effect, while Roosevelt's actions in declaring the bank "holiday" did help stabilize the banking industry.

Meanwhile, under the powers granted by the Emergency Banking Act, examiners from the Treasury Department, the Federal Reserve System, and state banking systems undertook the task of determining which banks were sound enough to reopen beginning Monday, March 13. The biggest fear was that when the banks began to reopen, still-panicky depositors would withdraw their money and start the bleeding again. Largely to avert such a reaction, President Roosevelt broadcast the first of his radio fireside chats on Sunday evening, March 12. More than 60 million people heard his comforting voice as Roosevelt explained the actions of the past few days and what would happen on Monday. His message was that banks were once again safe for depositors' savings. On Monday morning, March 13, people again lined up in front of banks, but instead of withdrawing money they waited to deposit their money. In New York City alone, deposits exceeded withdrawals by $10 million. The bank runs were over. People had regained confidence in their political leadership and in the banking system. By March 15 banks controlling approximately 90 percent of the country's banking resources had resumed business. Throughout the country deposits exceeded withdrawals. Those banks found unsound remained closed, awaiting reorganization.

Pecora Hearings

While Roosevelt was busy restoring confidence in banks, Congress, in 1933 and 1934, investigated and punished old violations of the public trust. Senator Duncan U. Fletcher, chairman of the Senate Banking and Currency Committee, directed the "Pecora Investigations." Ferdinand Pecora, counsel (lawyer) to the committee, tirelessly led the investigations. The sensational hearings revealed the unethical and immoral side of bankers. Pecora found that Charles E. Mitchell, head of National City Bank and commanding a salary of $1.2 million, paid no income tax. He had also issued $256 million in Peruvian bonds he knew were worthless.

Pecora's investigation also revealed that the brokerage house of Lee, Higginson and Company had defrauded the public of $100 million. He found that former Secretary of the Treasury Andrew Mellon and banker J. P. Morgan also managed to not pay taxes, as had twenty of Morgan's partners. The reputation of bankers hit a new low. Public outrage over the fraud uncovered in the Pecora investigations led to demands for solid bank reform.

Banking Act of 1933 (Glass-Steagall Act)

By mid-March 1933 President Roosevelt focused on permanent banking legislation. For the next six weeks many conferences on banking were held in Washington, DC. Frequent White House visitors were Senator Glass, Senator Fletcher, and Representative Steagall. Separation of commercial and investment banking, the very controversial deposit insurance, branch banking, and increased Federal Reserve control all were major topics of discussion as the bill to create the Banking Act of 1933 developed. Originally President Roosevelt did not support the deposit insurance proposal, but he knew the power of public opinion. As a result of the strong public support, a deposit insurance plan was included in the new banking bill. Bankers remained bitterly opposed to the proposed insurance plan.

On May 10, 1933, Senator Glass introduced a completed bill to the Senate, and on May 17, Representative Steagall introduced a similar bill to the House. The full bill passed through Congress in mid-June. President Roosevelt signed the Banking Act of 1933 into law on June 16. Roosevelt congratulated Senator Glass at having fathered the first major banking measure since the Federal Reserve Act of 1913.

The Banking Act of 1933 included the following provisions: (1) commercial banking was separated from investment banking. Member banks had one year to divorce themselves from security affiliates; (2) a new agency within the Treasury Department, the Federal Deposit Insurance Corporation (FDIC), was created to provide deposit insurance up to $2,500 for each depositor account at all FDIC insured banks. All Federal Reserve member banks had to join the FDIC. State non-member banks could join if they became part of the Federal Reserve System by July 1, 1936; (3) national banks could establish branches on a statewide basis in states already allowing state banks to do so, but interstate branching was still not permitted; (4) the Federal Reserve was given more control over loans made to member banks; (5) Interest payments on checking accounts (demand deposits) were prohibited to eliminate competition among banks to pay higher and higher rates; and (6) officers of national banks had until July 1, 1935, to divest themselves of any loans granted to them by their own banks. Divest means to give up something of value, in this case, their loans.

The Banking Act of 1933, which was commonly called the Glass-Steagall Act, laid a foundation for far-reaching changes in the American banking industry. Its passage marked the completion of the remedial banking legislation of President Roosevelt's "first hundred days" in office. The bank reform act was not as conservative as bankers had hoped for, nor as progressive as liberals desired. It was an outgrowth of public demand, formed by government officials and congressmen. Bankers, having never agreed on a plan, did not play a major role. Glass-Steagall was devised as compromise legislation to get the wheels of banking turning again and to restore normalcy. Its elements began both recovery and reform of the banking industry.

Banking Act of 1935

President Roosevelt did not turn his attention to banking issues again until Fall 1934. At the time rumors abounded among bankers that a government-run central bank might be created to own and operate all banking activity in the country. Senator Glass forcefully asserted that he did not know a single responsible leader in Washington considering such a move. Throughout 1934 President Roosevelt, in public and in private, reaffirmed his support of the American banking system. Nevertheless, fear of further government control got bankers highly involved with the next banking bill, developed in late 1934 and 1935.

President Roosevelt had appointed Marriner Eccles as the new governor of the Federal Reserve Board in August 1934. Eccles' appointment paved the way for New Deal banking legislation in 1935. Several problems with Glass-Steagall concerned private bankers and government officials, including Eccles. Glass-Steagall required officers of national banks to divest themselves of all loans granted them by their bank by no later than July 1, 1935, though many officers wanted an extension. Additionally, the FDIC was set to begin formal operations on January 1, 1935. Most bankers considered the insurance rates to be charged by the FDIC as too high. In the administration camp, Eccles wanted a major restructuring of the Federal Reserve System. He wanted to centralize power with the Federal Reserve Board in Washington, DC, rather than in the twelve regional Federal Reserve Banks. Roosevelt agreed, knowing his relief proposals would require massive federal spending involving cooperation with the Federal Reserve Board.

President Roosevelt reasoned that the bankers wanted the loan time extension and lower FDIC rates enough to agree to centralizing of the Federal Reserve System. His assessment was correct, and a bill containing these elements moved through the House and Senate in the summer of 1935.

On August 23 President Roosevelt signed the Banking Act of 1935. Title I reduced the FDIC fees; Title II restructured the Federal Reserve System, centralizing power in the Federal Reserve Board located in Washington, DC; and Title III postponed the loan divestment. The Banking Act of 1935 authorized the FDIC to: (1) set standards for member banks; (2) examine those banks for compliance; (3) take action to prevent troubled banks from failing; and (4) pay depositors if insured banks failed.

The Banking Act of 1935 was a milestone in public policy, much like other New Deal legislation. That is, it was now the federal government, not individual bankers, that played the role of overseeing a more coordinated U.S. banking system. Responsibility for monetary management and credit control also rested with the federal government. Ever since 1935 the Federal Reserve Board has carried out its responsibility to stabilize overall economic activity while providing a flexible currency to meet the nation's money supply needs.

Contributing Forces

Unit Banks

Bank suspensions or failures were more numerous in the 1920s than in any decade between 1890 and 1920. Nationwide bank failures between 1892 and 1899 averaged ninety a year; between 1900 and 1909, 49 a year; and, between 1910 and 1919, 66 a year. Between 1921 and 1929 an average of more than six hundred banks failed every year. Explanation for the high failure rate of the 1920s lies in federal and state legislation adopted in the second half of the nineteenth century. The resulting structure or organization of U.S. banking allowed the development of thousands of independently owned state banks or "unit" banks. The unit bank is a full-service commercial bank operating out of only one office or location. In the first years of the twentieth century the number of small unit banks increased dramatically.

In 1900 there were approximately twelve thousand commercial banks—banks where services included deposits and personal and business loans. By 1920 the number had risen to thirty thousand. Continuing the trend, liberal banking laws of the "roaring" 1920s allowed commercial banks in some states to open with as little as $6,000 in start-up funds or capital. Loans were freely made. Small rural banks made predominately agricultural loans to local farmers. Lack of enough capital, however, made the banks extremely susceptible to failure. A few bad loans could doom the tiny banks.

More About…Types of Banks

Banks are business organizations that accept deposits from the public or other businesses, hold those deposits until demanded by the depositor (as with a check), make loans to individuals or businesses, and purchase securities (bonds and/or stocks). Banks earn money when the interest paid out to depositors is less than the interest income earned on loans and other investments. Every banking institution is chartered by either the federal or a state government and is subject to a variety of regulations. The term "bank" now also describes a variety of banking institutions. Savings and loan associations, savings banks, and credit unions are sometimes referred to as "thrifts," since one of their major purposes has traditionally been to encourage savings.

Different types of banks originated to serve different types of need. Commercial banks traditionally served the needs of business. Investment banks raised money for businesses. Savings banks and savings and loans originated to serve different requirements of low-and moderate-income individuals. Although traditionally different in purpose, banking institutions through time have increasingly provided more of the same services. Legislation through the last half of the twentieth century gradually broadened the scope of services at all institutions.

Commercial Banks. Commercial banks are the most important banks in terms of assets and range of services. They offer checking accounts, savings accounts, and retirement accounts. Traditionally, industrial and business loans dominated lending, hence the name "commercial" banks. Modern commercial banks meet the needs of individuals as well as businesses. Limited in their dealings in securities from 1933 until 1999, commercial banks began in 2000 to rapidly diversify into securities investments and insurance.

Savings and Loan Associations (S&Ls). S&Ls traditionally provided loans for housing-related purposes, including mortgages, home improvement, and construction. They chiefly relied on individual savings accounts for their funds. Modern S&Ls offer checking accounts, savings accounts, retirement accounts, consumer and business loans, and educational loans. In the 1980s and 1990s they have been allowed to diversify their lending.

Savings Banks. Savings banks originated in the early 1800s to encourage savings among the poor and working class by providing a safe haven for their deposits. Modern savings banks offer savings, checking, and retirement accounts and make personal and business loans.

Credit Unions. Credit unions' depositors are people with a common bond, such as teachers' credit unions or a certain university's credit union. They offer checking and savings accounts for their members, and loan funds, usually at interest rates lower than that of other institutions. Credit unions typically do not loan to businesses.

Investment Banks. Investment banks primarily raise money for businesses or for the government by buying and selling securities. To raise money or capital for a business, investment banks sell the company's stock, called shares, to investors, who become part owners of the business. Bonds issued by the government or by a business are borrowings from the investor. The investor who buys the bond becomes a creditor of the government or business. The government or business must eventually pay the money invested in the bond, plus interest, back to the investor.

Investment banks do not accept deposits or make loans. Between 1933 and approximately 1980, other banking institutions were prohibited from investment banking except to buy U.S. government bonds. Not until 1999 could other banks diversify widely into securities.

The late nineteenth century banking legislation ensured the predominance of the single office bank by all but banning any nationwide or statewide branching. In the early twentieth century, much discussion among bankers centered on branch banking. Branches

are smaller arms of main banks and are located throughout a region. In 1900, 87 banks had established branches. In 1927 Congress passed the McFadden Act, allowing national banks to branch within the cities of their main offices. Still, by 1930 only 751 banks had branches. Like national banking, branching was concentrated primarily in large east coast cities. Nowhere had the growth of branch banking been uniform. Branch banking laws differed widely from state to state. Some permitted statewide branching of state banks; some permitted no branch banking. An advantage branch banking offered was a more diversified depositor base. If one branch was in trouble, another stable branch's gains could offset the troubled branches' loses.

Dual Banking and Federal Reserve Systems

The U.S. banking structure evolved through the nineteenth century as a dual banking system. Bank supervision was divided between federal and state government authorities. Under the dual system the federal government chartered national banks. The U.S. Treasury Department's Office of the Comptroller of the Currency provided supervision. State banks were chartered by the individual states. State authorities regulated them under varying state laws. This dual system offered no nationwide unity, but instead fostered a strong allegiance to local interests. Few individual banks comprehended U.S. banking from a national perspective.

In 1913 an avenue had opened for state-chartered banks to come under the federal umbrella. Passed that year, the Federal Reserve Act created twelve Federal Reserve Districts across the nation. A Federal Reserve Board was to oversee the entire system. The Federal Reserve System was charged with promoting economic stability. The act required all national banks to be members of the Federal Reserve System. A state bank, meeting minimum capital requirements, could also choose to become a Federal Reserve member.

The Federal Reserve Act was initially created to avoid the state-imposed prohibitions on interstate banking that made check clearance across state boundaries impossible. Each member bank had to maintain reserves deposited in its regional federal reserve bank. The reserve deposits allowed for a national check clearing arrangement. The other major advantage to joining the Federal Reserve System was a member could borrow, at discount rates, currency or loan-able funds from its regional federal reserve bank as needed. The disadvantage to joining the system was the reserve funds each member bank was required to deposit in its federal reserve bank did not draw any interest. The member bank's reserve funds essentially sat in the reserve bank earning the member bank no interest income instead of being deposited in another bank where the funds would draw interest. Thus it was more profitable for individual banks to not belong to the Federal Reserve System.

More About…The Federal Reserve System

Under the Federal Reserve System the United States was divided into 12 Federal Reserve Districts, each with a Reserve Bank. The Reserve Banks carry out the day-to-day operation as the nation's central banking system. The Reserve Bank's services for depository banking institutions across the nation parallel the services those banks and thrift institutions provide to businesses and individuals. For example, banks and thrifts deposit money into their accounts, called reserve accounts, at their regional Reserve Bank. In turn the Reserve Bank makes loans to them. Reserve Banks also move coin and currency into and out of circulation, collect and process millions of checks each day, and supervise member banks for safety and soundness. Reserve banks provide the U.S. Treasury Department with its checking accounts and buys and sells government securities or bonds. A board of nine directors supervises each of the Reserve Banks.

Overseeing the entire system is the Board of Governors, commonly known as the Federal Reserve Board. The seven members of the Board of Governors are appointed for 14-year terms by the president and confirmed by the Senate. The appointments must fairly represent financial, agricultural, industrial, and commercial interests from around the country. The Federal Open Market Committee (FOMC) is the most important monetary policy-making body of the Federal Reserve System. The FOMC is composed of the seven members of the Board of Governors, plus five Reserve Bank presidents. The Reserve Bank presidents serve one year on a rotating basis, except for the president of the Federal Reserve Bank of New York, who serves on a continuing basis. United States monetary policy is set by the Board of Governors and the FOMC. Monetary policy is determined in three ways:

1. The Board of Governors sets reserve requirements. Member banks must keep a certain percentage of their deposits in a reserve account with their regional Reserve Bank. The Board may change the reserve percentage from time to time. For example, when the reserve requirement is 15 percent, a member bank must keep in its reserve account with the Reserve Bank $15 out of every $100 of its deposits. It then has $85 left from every $100 deposited to lend or invest. In this way the reserve requirement controls the amount of money available for lending. If banks are required to increase reserves there will be less money in circulation or money will be "tighter."
2. The boards of directors of the Federal Reserve Banks can change the rate of interest, or "discount rate," member banks are required to pay for loans from the Reserve Banks. Discount rate changes must be approved by the Board of Governors in Washington, DC. If an expansion of the supply of credit money is desired, the decision would be to lower the discount rate. A lower rate would cost member banks less when they borrow. Therefore they borrow more, making more money available for loans to customers. A low discount rate or a reduction in the rate makes clear that the Federal Reserve believes an increased supply of money would be in the public interest. On the other hand, a raise in the discount rate would discourage member banks from borrowing, making less money available for customer loans. A high rate or an increase in the rate indicates that the Federal Reserve believes there is too much money that would encourage inflation.
3. The Federal Reserve influences the money supply by buying or selling government securities (bonds). This process is called open market operations. The FOMC meets eight times a year to determine policy with respect to purchasing or selling government bonds. When the Federal Reserve Bank purchases government bonds, the money is deposited in a commercial bank. The bank's supply of money is increased so that more money is available for loans to businesses and individuals. When the Federal Reserve Bank sells government bonds, it receives money in payment for them from commercial banks. This results in less money to be loaned out to business and individuals.

Between 1900 and 1920, the number of state-chartered banks rose from over eight thousand to 22,267, but only 1,374 elected to become Federal Reserve members. Most did not join because they did not have enough capital, because they refused to deposit reserves in a non-interest bearing situation, and/or because they fiercely rejected federal supervision. By 1920 the 8,024 national banks had assets of $23.3 billion. The 1,374 state member banks of the Federal Reserve had assets of $10.4 billion. The 20,893 non-member state banks had assets totaling only $13.9 billion. The dual banking system continued to be a headache for federal regulators, who had no control over the large number of non-member banks. Many small, poorly regulated, and undercapitalized rural banks would fall prey to agricultural difficulties following World War I (1914–1918).

Agricultural Woes, Loan Speculation, and Reform

In the post World War I, period agriculture suffered from a decreased demand for its products. During the war Europeans, unable to grow enough food, bought American products. The high levels of American agricultural production continued after the war, but overseas demand halted, resulting in chronic U.S. over-production. Farm prices fell and farm income decreased. Through the 1920s farmers defaulted on loans and on mortgages. Deposits in local banks also drastically declined.

As a result bank failures in the 1920s were most prominent in the agricultural regions of the Midwest and Southeast. These rural areas did have the greatest increase in number of banks prior to 1920. A majority of bank failures between 1921 and 1929 were banks in communities of 2,500 or fewer inhabitants and with capital stock of $25,000 or less.

Unlike agriculture, businesses and industries had prospered in the 1920s. To many it seemed that the economic boom of the 1920s would go on forever. Banks competed aggressively with one another by offering higher rates to attract deposits. To cover the expense of high interest rates paid to customers, banks needed interest income. This income came from the interest banks charged on loans. Therefore they made loans easy to obtain. Banks readily extended credit for business ventures, real estate, and investments in stocks and bonds. Depositors who wished to invest in the stock market found credit easy to obtain. They could fund 90 percent of the price of purchasing the stock through bank loans or through stockbrokers who had obtained bank loans for stock purchase.

Prior to the stock market crash of 1929, member banks were able to use Federal Reserve System funds for many speculative (high risk) loans. The Federal Reserve had also followed the policy of "easy money," making more money available to member commercial banks to be loaned out. By the end of the decade individuals and businesses were unable to keep up with payments on loans. Banks in the 1930s would watch as many of these loans and investments became worthless.

As the 1920s drew to a close, the banking community was aware of the need for bank reform. A few bankers advocated either central banking or an extensive system of large, stable commercial banks with close government supervision. Many bankers supported branching, believing it would not only allow banks to grow but would better serve customers. They envisioned a stronger nationwide banking structure, as weak banks would be eliminated. On the other hand many bankers throughout the country were opposed to any expansion of branch banking. They feared a concentration of power in a very large bank with many branches, unfair competition, and a decline of the local bank that they believed best served each community. They feared it would end the dual banking system in America by concentrating the industry in large centralized banks. Likewise, many Americans were suspicious of powerful financial institutions, preferring only local control with a minimum of restraints on the opportunity to make money. America's bankers could come to no agreement, and no reform plan was ever put forth in the 1920s. Thus, in the economic turmoil of the 1930s, effective reform became a priority.

Perspectives

Presidents and Congressmen

President Herbert Hoover regarded the banking crisis as a crisis of confidence. He chose to combat the crisis with speeches repeatedly reminding the country that its banking and economic systems remained strong, and that the paralysis was produced by an unjustified lack of confidence. He believed conditions aided by voluntary cooperation between bankers, businessmen, workers, and consumers would correct themselves. Seeing himself as a leader and guide rather than as an activist, Hoover called conferences, suggested remedies, and worked for cooperative agreements. He realized reforms might be necessary, but he emphasized voluntary action from leaders of banking, industry, agriculture, and labor. Every slight economic upturn caused Hoover to announce the end of the Depression. But each message proved false, and Hoover's credibility plummeted.

Franklin D. Roosevelt knew Americans had lost confidence in the banking system, but he felt real problems were behind the lack of confidence. He felt a pressing need for banking reform, even as governor of New York (1928–1932). Roosevelt sensed little interest on the part of bankers, however, to make any meaningful changes. Likewise, during the first days of his presidency he found that bankers had little to offer in the way of suggestions or recommendations to solve the banking crisis.

Roosevelt believed banking should be strictly supervised, that banking ethics should always be maintained, and that depositors should be protected against bad banking practices. He did not, however, believe in government exclusively owning and operating banks. Nor did he believe in a concentration of all banking resources and control in one spot. Even while the Banking Act of 1933 was progressing through its final development, Roosevelt did not support deposit insurance. He wanted other plans substituted. Roosevelt, however, being a true politician, bent to the public will on the insurance issue.

Although bankers feared he wanted radical changes, President Roosevelt's banking policies were thoroughly conservative. His appointments in banking-related areas were conventional. For example, both U.S. Treasury Secretary William Woodin and Eugene Black, head of the Federal Reserve Board, were conservatives on money matters. The uniqueness of Roosevelt's policies lay in their swiftness and bold application.

Most congressmen were ready to follow the lead of the new president. Typically those on the far right felt the reform proposals were too liberal. The loudest cries, however, came from the left, or progressives. Having heard the president's inaugural address denouncing bankers as "money changers" fleeing from their "temples," they expected radical reform, but they vastly underestimated Roosevelt's true conservative nature on banking. They considered the Emergency Banking Bill, passed the evening of March 9, 1933, to be a conservative measure. The vote in the Senate was 73–7. The seven voting against the bill were not conservatives, but a small band of progressives.

Bankers

The banking community between 1930 and 1933 was fully aware of the need for reform. The division of opinion on a course of action, however, reflected the numerous conflicts of interest and the enormous complexity of the situation. There were commercial banks, investment banks, savings and loan associations, and credit unions. There were large banks, small banks, national banks, state banks, sound banks, and unsound banks. There was contention between the national and state banks, urban versus rural banks, and east coast versus interior banks.

A few bankers advocated one central bank, owned and operated by the government, and opposed the regional operation of the Federal Reserve System with twelve districts nationwide. Yet most bankers were hesitant to advocate one central authority that would greatly increase the amount of federal control over banking. State bankers vehemently opposed federal control, an outgrowth of the long-time controversy over states' rights as opposed to federal power. Among bankers who did support bank reform there was a decided lack of unity on what action should be taken. Many believed that bad banks would always exist. Reform, most bankers believed, would have to come from rigid enforcement of existing laws and regulation.

As reform banking legislation moved through Congress, bankers voiced many objections. Out of harmony with the Roosevelt administration, in disfavor with the public, and in disagreement amongst themselves, bankers had little impact on the legislative process. The one subject they were united on was opposition to deposit insurance. Their attitude was that it would penalize the strong banks to the benefit of the weak banks, thereby further weakening the banking economy. Bankers believed deposit insurance was like trying to insure everyone against everything, and that simply was not the way the world worked, especially in the 1930s.

The Public

Bewildered and perplexed, the public saw the once proud and trusted banking community crumble, taking with it their life savings or that of friends or relatives. They had no way to distinguish a strong bank from a weak one and had lost confidence in them all. A single rumor could start a run. Keeping money in mattresses and buried in back yards became preferable to depositing funds in financial institutions.

As investigations progressed the public became outraged at the seemingly prevalent banking fraud. People were also discouraged at the banking industry's speculation in the stock market at the expense of depositors' funds.

However, the public had a new president with a confident smile, a calming voice, and a determination to take action. Within 35 hours of his inauguration, President Roosevelt brought the banking problem to a head, stopped runs, and centralized authority. The public would have followed him anywhere, cheering the entire way.

One issue the public and President Roosevelt were out of step on was deposit insurance. The public demanded it. Therefore, a reluctant Roosevelt yielded to them. It put confidence back in banking—a confidence Roosevelt realized must be restored. On this issue, the public had been correct.

Impact

An Enduring Federal Deposit Insurance Corporation (FDIC)

The FDIC, created by the 1933 Glass-Steagall Act, not only restored confidence in banks for Depression-weary depositors, it maintained high public confidence for the rest of the twentieth century. Depositors believed their money, insured by a large federal corporation, was safe. If their bank should fail, the FDIC would pay back their lost money. Therefore, most all Americas confidently deposited their money into banks. The FDIC directly reduced the rate of bank suspensions throughout the country. Between 1934 and 1940, approximately 450 suspensions occurred, down from almost four thousand alone in 1933. Only 112 total bank suspensions occurred between 1941 and 1960. A key benefit in belonging to the Federal Reserve System is that the FDIC automatically insures deposits in member banks. Of all the freshly created New Deal agencies none had more endurance and universal acceptance than the FDIC. Depositor confidence in individual banks is an important concern for the stability of the banking system. U.S. banks have not experienced economically significant or contagious runs since the FDIC's establishment. By the turn of the twenty-first century virtually no depositors had incurred loses.

More About…Where Was the Federal Reserve?

As the unemployment rate edged to 25 percent, and numerous depositors lost money in the 1930s, bank after bank closed. Where was the Federal Reserve? The "Fed" was supposed to be the lender of last resort. That is, when a troubled bank could find no other bank to lend it money, it could turn to the Fed. The Fed would often lend the money a bank needed to get through its crisis. That is the way the system was intended to work. During the years of the Great Depression, however, the Fed did not do this. Many believe the economic woes of the Depression were made considerably worse because of the Federal Reserve's inaction. Looking back at the entire decade of the 1930s, economists suggest two reasons why the Fed did not act.

First, it appears Fed officials believed that failing banks were poorly managed and should be allowed to disappear. This was a common perception of the day in all areas of business. The problem with letting this happen in the banking industry was that one or two bank failures in an area could cause depositors to wonder if their own bank might also be in trouble. For every two banks that failed, perhaps fifty were in good shape, but the public could not tell which banks were in trouble and which were not.

Depositors would start withdrawing their money. Sometimes enough people did this to cause a "run" on the bank—a majority of depositors attempting to withdraw their money at the same time. Since banks loaned out money, no bank kept enough cash on hand to satisfy all customers at once. As a result those at the end of the line would not get their money. Even though the bank had been perfectly sound and well managed, depositor's fears caused their bank to fail. This scenario played out time and again across the country.

Second, economists suggest Fed officials were bowing to the wishes of big bank owners. The majority of failing banks were in small towns and rural areas. Big city banks did not like the competition of the many small banks. Big city bankers were happy to see small banks go out of business and pressured the Fed to do nothing to save the troubled banks.

Banking centered on maintaining financial stability between 1935 and 1970 by adhering to provisions set forth in the Banking Act of 1933 (Glass-Steagall Act). In addition to the FDIC, the act prohibited interest payments on checking accounts and allowed the Federal Reserve to limit the interest paid on savings accounts. Both enabled banks to quit warring over higher rates to attract customers, saving them from paying interest rates they could not afford. Further, the Depression-spawned Glass-Steagall also separated commercial banks from stock brokerages. Although widely viewed as a major cause of bank failure in the 1930s, historians have since shown losses on securities played a very minor role in the failures. Only 7.2 percent, or 15 of the 207 national banks that actively dealt in securities, failed. This percentage is far smaller than the percentage of failed national banks that did not conduct both commercial and investment banking.

The failures, 90 percent of which were rural banks, were overwhelmingly caused because small unit banks that had too little capital concentrated loans in the depressed agriculture sector. Their loan portfolios had very little diversification. Nevertheless, commercial banking activities and securities investment remained divorced.

During the years after the end of World War II (1939–1945) through the 1960s, banks that had weathered the 1930s prospered in a stable atmosphere. Very few new banks were established. It was very difficult to obtain a charter since the perception persisted that too many banks existed in the early 1930s, partly leading to so many failures. Industrial loans dominated bank lending, although banks expanded consumer credit by offering credit cards as early as 1950. Mortgage lending also increased after 1963, when Congress passed legislation allowing national banks to offer terms similar to those offered by savings and loan associations. The few banks that did fail through this time period were small, and depositors lost no money thanks to the FDIC.

By 1971 the Glass-Steagall provisions separating commercial banks and investment firms, in addition to the interest rate caps imposed by the Federal Reserve in 1934, began to take a significant toll on banks. Investment and security firms established new types of funds directly competing with banks for depositors. Fewer regulations on the security firms gave them a distinct advantage. Security firms introduced the money market fund in 1971. This type of fund, in which anyone with the minimum amount required (usually one to two thousand dollars) could invest, paid a much higher interest rate than banks were allowed to pay. Many individuals and companies withdrew their deposits and put them in money market funds even though no insurance for the funds existed. An added benefit was that funds could easily be transferred from the money market accounts into mutual stocks funds.

To help banks keep their depositors, in 1980 Congress passed the Depository Institution's Deregulation and the Monetary Control Act (DIDMCA). At that time, the DIDMCA was the most important single piece of banking legislation since 1933 and the Glass-Steagall Act. Amending a small part of Glass-Steagall, it allowed banks to pay interest on checking accounts, called NOW accounts. The act also phased out interest rate caps, negating the 1934 regulation that had set maximum interest rates. The phase-out of interest rate caps was complete in 1987. The DIDMCA also raised the maximum FDIC coverage to $100,000 for each account deposited in FDIC-member banks. The act helped curtail the drain of deposits from banking accounts, but the inflation driven double-digit interest rates of the 1970s spelled trouble for the 1980s.

The 1980s Crisis

In the 1980s the banking and savings and loan industry (S&Ls) experienced the worst crisis of banking institutions since the Great Depression. Congress began to deregulate the S&L industry with the DIDMCA. The DIDMCA allowed S&Ls to pay higher interest rates to be competitive with money market funds. The DIDMCA also allowed S&Ls to offer adjustable rate mortgages (ARM). ARMs allowed the interest rates charged to home buyers on their mortgages to float with the market interest rates. S&Ls had been caught in a bind. During the 1970s inflation-driven interest rates had gone very high so S&Ls had to pay very high interest rates on depositors' accounts. But the long-term mortgages they held and received their income from were at much lower interest rates. Therefore the S&Ls were receiving considerably less income than they had to pay out. With ARMs interest, income could begin to match the rates S&Ls were having to pay out on depositors accounts.

The second major form of deregulation was the Garn-It, or German Depository Institutions Act of 1982. This act enabled S&Ls to diversify and invest in other types of loans besides home construction and purchase loans. They invested in many types of commercial loans, such as in office buildings, shopping centers, condominium projects, hotels, and resorts. S&Ls plunged into these often risky ventures. A third form of S&L deregulation was actually a change in accounting procedures which allowed S&Ls to appear to have more solid financial positions than they really did. The rapidly rising inflation rates of the 1970s and 1980s began to slow considerably by the mid-1980s. Real estate values turned downward, dropping below the value of the loans. Borrowers were not able to keep repaying the high debt payments and correspondingly high interest rates. A major example occurred in the energy-producing states such as Texas, Louisiana, and Oklahoma. Oil prices had jumped from $12 a barrel to $35 a barrel with predictions of $100 a barrel. Banks and S&Ls drastically increased their loans for oil production, but by 1986 oil prices collapsed back to near $12 a barrel, and repayment of loans was impossible. By the late 1980s, nine of the ten largest Texas banks failed, and the entire energy producing regions saw 500 banks and S&Ls fail.

Overall, the failures of the 1980s were largely due to deliberately high-risk loan strategies, poor and even foolish business judgments, excessive optimism, and sloppy accounting, all compounded by the declining values of real estate and oil and gas revenues. From 1980 to 1990, approximately 1,100 banks and S&Ls failed. Depositors did not lose their funds thanks to Depression-era legislation establishing depositors' insurance, FDIC, and FSLIC, established by the National Housing Act of 1934. However, the FSLIC was strained beyond repair and Congress took action.

Just as in the 1930s, the federal government intervened to solve problems and restore public confidence. Congress passed the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). FIRREA created the Office of Thrift Supervision (OTS) under the U.S. Treasury Department. It took the place of the Federal Home Loan Bank Board (FHLBB) in oversight of S&Ls. FIRREA created the Resolution Thrift Corporation (RTC). RTC's sole purpose was to manage and dispose of the assets of S&Ls that failed between 1989 and 1992. FIRREA also eliminated the FSLIC, replacing it with the Savings Association Insurance Fund (SAIF), to be administered by the FDIC.

Secondly, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991. This act allowed earlier intervention by regulators into a troubled bank's affairs. They could intervene before a bank's capital fell too low. The Crime Control Act stiffened criminal penalties in 1990 for crimes related to financial institutions.

Glass-Steagall Repealed—1999

During the 1980s the Glass-Steagall Act, separating commercial banking from investment banking, came under repeated challenges. Bankers wanted to improve their competitive position by offering many more financial services. While bankers demanded repeal of the Glass-Steagall Act, the securities industry strongly opposed any changes. Congress was hesitant to give additional powers to banks.

Through the 1990s the economic thinking in the United States changed. A separation of commercial banking and investment banking seemed increasingly outdated in a global economy that favored diversification. Once designed to safeguard economic growth, Glass-Steagall now seemed to be an obstacle to it. Insurance companies had been similarly separated from both commercial banks and investment companies by another act passed in the 1950s. Banking, securities, and insurance industries all began to agree on the urgent need for reform so that they could merge operations. The competitive international world demanded large one-stop shopping financial institutions. Foreign financial institutions had been large integrated conglomerates for some time. In 1999, six decades after the passage of Glass-Steagall, President Bill Clinton (1992–2001) signed the Gramm-Leach-Bliley Financial Services Modernization Act. The act repealed the Glass-Steagall Act, which restricted the ability of banks and securities to intermingle. Gramm-Leach-Bliley enabled banks, security firms, and insurance companies to create financial conglomerates. Conglomerates engage in a wide variety of business activities. Financial conglomerates may offer such products as certificates of deposit, stocks, credit cards, insurance, mutual funds, mortgages, and auto loans.

By the late 1990s, a wave of mergers among financial institutions had taken place in anticipation of Glass-Steagall's repeal. Citicorp and Travelers Insurance merged in 1998. Its offspring, Citigroup, positioned itself to be the first real universal financial institution in the United States. At the beginning of the twenty-first century—in an America without Glass-Steagall—banks looked to go on-line and diversify their services further. Chase Manhattan, Fleet Financial, and Mellon Bank each have merged with on-line brokerages to put their services on the web.

Notable People

Eugene Robert Black (1872–1934). Eugene Robert Black practiced law in Georgia before becoming president of the Atlanta Trust Company in 1921. Appointed governor of the Federal Reserve Bank of Atlanta in 1927, Black frequently warned that the unhealthy state of the banking system in the 1920s would lead to a nationwide banking crisis. Widely respected in the conservative banking community, Black served as a link between the White House and the financial community. In May 1933 President Franklin D. Roosevelt appointed him head of the Federal Reserve Board. Black took a leading role in certifying banks to reopen after the "bank holiday." He also played an influential role in creating the Securities Act of 1933, the Banking Act of 1933, the Securities Exchange Act of 1934, and in extending the Reconstruction Finance Corporation. Eugene Robert Black died after a brief illness in December 1934.

Leo Thomas Crowley (1889–1972). Although hailing from a poor family, Leo Crowley had a keen sense for business and banking. By 1918 he was president of a paper supply company. In 1920 he became president of the State Bank of Wisconsin and director of First Wisconsin Bankshares Corporation. Crowley's finances took a downturn when his bank failed in 1932. He helped write Wisconsin's bank holiday proclamation in March 1933. Known as a conservative Democrat, Crowley supported Franklin D. Roosevelt in the 1932 presidential campaign. In February 1934 Roosevelt appointed him to head the new Federal Deposit Insurance Corporation, where he remained for twelve years. Crowley's expertise paved the way for many troubled banks to become part of the new insurance program.

Duncan Upshaw Fletcher (1859–1936). Fletcher was elected to the Senate in 1909. A moderate Democrat, he became chairman of the Senate Banking and Currency Committee in 1932. He was a faithful supporter of President Roosevelt and New Deal legislation. Fletcher directed the "Pecora investigations" of the banking community. The Securities Exchange Act of 1934 and the Banking Act of 1935 were both sponsored by Fletcher.

Marriner Stoddard Eccles (1890–1977). Born and educated in Utah, Marriner Stoddard Eccles as a young man managed his family's enterprises into a multimillion dollar empire. He successfully led the family banks through the banking panics of 1932 and 1933 with no failures. As the economy grew worse in that time period, he advocated increased consumer purchasing power and more private investment as a remedy. Eccles believed federal government spending could lead the way. President Roosevelt appointed Eccles chairman of the Federal Reserve Board in 1934. Eccles accepted on the condition that the board could be reorganized under the centralized control of the Washington Federal Reserve Board. He also helped draft the Banking Act of 1935. Eccles served as chairman of the board until 1948 and remained a member until 1951.

Carter Glass (1858–1946). Carter Glass was born in Lynchburg, Virginia. His father was a newspaperman. As a young man, Glass became a reporter and writer for the Lynchburg Daily News, but soon entered politics. He served in the U.S. House of Representatives from 1902 until 1918, and chaired the House Committee on Banking and Currency, where he was the acknowledged "father" of the Federal Reserve Bank Act of 1913. Glass served as Woodrow Wilson's secretary of the treasury from 1918 to 1920 when he entered the Senate. He strongly advocated the separation of commercial banking and investment banking. He believed that speculative investment in stocks and bonds was not compatible with safe commercial banking practices. He helped author the Glass-Steagall Act (the Banking Act of 1933) that, among other things, separated commercial banking from investment banking. The act also created the Federal Deposit Insurance Corporation, a provision to which he was opposed. Glass was a popular states' rights conservative Democrat. Stubborn and independent-minded, he opposed most New Deal programs. Glass remained in the Senate until his death in 1946.

George Harrison (1887–1958). Harrison was appointed deputy governor in 1920, governor in 1928, and president in 1936 of the Federal Reserve Bank of New York. He was a major contributor to the Emergency Banking Act of 1933, the Banking Act of 1933, and the Banking Act of 1935.

Jesse Holman Jones (1874–1956). Jones, a "self-made man" from Texas, had business interests in real estate, construction, banking, newspaper publishing, and oil. In January 1932 President Herbert Hoover appointed Jones as one of the seven directors of the newly created Reconstruction Finance Corporation. President Franklin D. Roosevelt advanced Jones to chairman of the RFC in 1933, a position he held until 1945.

Ogden Mills (1884–1937). Mills served as secretary of the treasury under President Herbert Hoover. He unselfishly gave immeasurable assistance to the incoming Roosevelt Administration in early 1933, playing a central role in developing the Emergency Banking Act of 1933 during the nationwide bank holiday.

Raymond Moley (1886–1975). After President Roosevelt's election in 1932, Raymond Moley served as Roosevelt's close advisor, playing an influential role in creating the legislation of the "first hundred days." He was instrumental in the actions taken in the days surrounding Roosevelt's inauguration, which averted a banking disaster. Moley was one of President Roosevelt's advisors who called for a nationwide bank holiday.

Henry Morgenthau, Jr. (1891–1967). Morgenthau served as secretary of treasury under President Franklin D. Roosevelt for eleven years, from 1934 until 1945. He replaced the ailing Secretary of the Treasury William H. Woodin.

James Francis Thaddeus O'Connor (1885–1949). President Franklin D. Roosevelt appointed O'Connor comptroller of the currency. O'Connor served in this Treasury Department office until 1938. He presided over the examination and certification to reopen thousands of banks closed during the nationwide bank holiday in March 1933.

Ferdinand Pecora (1882–1971). Born in Nicosia, Sicily, Pecora's family immigrated to the United States in 1887. Pecora graduated from New York law school in 1906. In January 1933 Pecora was hired as legal counsel to the Senate Banking and Currency Committee for its investigation into banking and securities fraud. In that role, Pecora exposed tax and securities fraud and numerous unethical business practices by such banking giants as J.P. Morgan, Winthrop Aldrich of Chase National Bank, and many others. His investigations led directly to the Securities Exchange Act of 1934. Pecora served as one of the original members of the Securities and Exchange Commission.

Henry Bascom Steagall (1873–1943). Henry Steagall was elected to the U.S. House of Representatives in 1914 and remained in the House 28 years until his death. Steagall became chairman of the House Committee on Banking and Currency in 1930. He aided President Herbert Hoover in the creation of the Reconstruction Finance Corporation.

Steagall supported Franklin D. Roosevelt in his bid for the presidency and in March 1933 helped rush the Emergency Banking Act of 1933 through the House of Representatives. A few months later Steagall was influential in drafting the Banking Act of 1933, commonly known as the Glass-Steagall Act. This act included provisions for the Federal Deposit Insurance Corporation (FDIC), which provided deposit insurance to depositors. Long advocated by Steagall, the FDIC provided effective protection to depositors' funds and created lasting confidence in the banking system.

William Hartman Woodin (1868–1934). A lifelong Republican, Woodin became close friends with, and an associate of, Franklin D. Roosevelt during the time they spent together working on the Warm Springs Foundation in February 1933. President-elect Roosevelt appointed Woodin as secretary of treasury for his new administration. Woodin played a critical role in the weeks surrounding Roosevelt's inauguration, with the decision to call a nationwide banking holiday and the putting together of the Emergency Bank Act of 1933. A conservative in money matters, Woodin presided over the development of the Banking Act of 1933 (the Glass-Steagall Act). He resigned his post in January 1934 because of illness and died in May 1934.

Primary Sources

The First Fireside Chat—March 12, 1933

The following is part of President Roosevelt's historic first fireside chat (quoted in Samuel J. Rosenman, The Public Papers and Addresses of Franklin D. Roosevelt, 1938, vol. 2). His confident, calming voice over the radio waves explained the nationwide bank holiday and reassured Americans as the banks prepared to reopen the next morning.

I want to tell you what has been done in the last few days, why it was done, and what the next steps are going to be… First of all, let me state the simple fact that when you deposit money in a bank the bank does not put the money into a safe deposit vault. It invests your money in many different forms of credit—bonds, commercial paper, mortgages and many other kinds of loans. In other words, the bank puts your money to work to keep the wheels turning around. A comparatively small part of the money is kept in currency—an amount which in normal times is wholly sufficient to cover the cash needs of the average citizen. In other words, the total amount of all the currency in the country is only a small fraction of the total deposits in all of the banks.

What, then, happened during the last few days of February and the first few days of March? Because of undermined confidence on the part of the public, there was a general rush by a large portion of our population to turn bank deposits into currency… The reason for this was that on the spur of the moment it was, of course, impossible to sell perfectly sound assets of a bank and convert them into cash except at panic prices far below their real value.…

It was then that I issued the proclamation for the nationwide bank holiday … The second step was the legislation … passed by the Congress … to extend the holiday and lift the ban of that holiday gradually. This law also gave authority to develop a program of rehabilitation of our banking facilities … The new law allows the twelve Federal Reserve Banks to issue additional currency on good assets and thus the banks which reopen will be able to meet every legitimate call.…

As a result, we start tomorrow, Monday, with the opening of banks in the twelve Federal Reserve Bank cities—those banks … have already been found to be all right.… On … succeeding days banks in smaller places allthrough the country will resume business, subject, of course, to the Government's physical ability … to make common sense checkups … It is possible that when the banks resume a very few people who have not recovered from their fear may again begin withdrawals. Let me make it clear that the banks will take care of all needs—and it is my belief that … when the people find that they can get their money … the phantom of fear will soon be laid. I can assure you that it is safer to keep your money in a reopened bank than under the mattress.

There will be, of course, some banks unable to open without being reorganized. The new law allows the Government to assist in making these reorganizations quickly and effectively … I do not promise you that every bank will be reopened or that individual losses will not be suffered, but there will be no losses that possibly could have been avoided; and there would have been more and greater losses had we continued to drift. I can even promise you salvation for some at least of the sorely pressed banks.… Confidence and courage are the essentials in carrying out our plan. You people must have faith; you must not be stampeded by rumors … We have provided the machinery to restore our financial system; it is up to you to support and make it work. Together we cannot fail.

Monday, March 13, 1933

Will Rogers, lecturer, humorist, and social critic, commented on the success of President Roosevelt's first fireside chat that dealt with the banking crisis. His words are reproduced in Susan Winslow's Brother, Can You Spare a Dime? America from the Wall Street Crash to Pearl Harbor: An Illustrated Documentary, 1979).

Mr. Roosevelt stepped to the microphone last night and knocked another home run. His message was not only a great comfort to the people, but it pointed a lesson to all radio announcers and public speakers what to do with a big vocabulary—leave it at home in the dictionary.

Some people spend a lifetime juggling with words, with not an idea in a carload.

Our President took such a dry subject as banking (and when I say 'dry,' I mean dry, for if it had been liquid, he wouldn't have to speak on it at all) and made everybody understand it, even the bankers.

At the Treasury Department

Raymond Moley, a close advisor to President Roosevelt and an assistant secretary of state, observed that the men who worked together to find solutions during the bank crisis of March 1933 had "forgotten to be Republicans or Democrats…we were just a bunch of men trying to save the banking system." The Emergency Banking Act of 1933 and the Banking Act of 1933 resulted. The preceding passage can be found in Helen Burns' book, The American Banking Community and New Deal Banking Reforms, 1933–1935, 1974.

Federal Deposit Insurance Corporation (FDIC)

The following statements are from a committee report at the 1934 annual meeting of the American Bankers Association (quoted in Helen Burns, The American Banking Community and New Deal Banking Reforms, 1933–1935, 1974). The FDIC was originally established with the Banking Act of 1933. Bankers opposed FDIC's creation. This report represents a dramatic swing in opinion of deposit insurance by the bankers.

There is no question but that the law guaranteeing deposits has reestablished the confidence of many thousands of small depositors throughout the United States. This has given a certain stability to the banking situation that might not otherwise have existed under all the conditions that have prevailed.

Suggested Research Topics

1. Imagine what it would be like if banks closed suddenly for one week. How would you live? Could you get to school or work? What likely alternate ways of paying for necessities would develop?
2. The first two national banks were the First Bank of the United States and the Second Bank of the United States. What were their functions and did they survive? What role did the issue of states' rights play?
3. Research the organization and function of the modern Federal Reserve System (FRS). Further study the two main committees that direct FRS policies, the Board of Governors and the Federal Open Market Committee.
4. Alan Greenspan became chairman of the Federal Reserve Board in 1987 and was very prominent in keeping American economic policy stable at the end of the twentieth century. Explore his early life, including influences and interests, and his career as an adult.

Bibliography

Sources

Benston, George J. The Separation of Commercial and Investment Banking: The Glass-Steagall Act Revisited and Reconsidered. New York: Oxford University Press, 1990.

Burns, Helen M. The American Banking Community and New Deal Banking Reforms, 1933–1935. Westport, CN: Greenwood Press, 1974.

Glasner, David, ed. Business Cycles and Depressions: An Encyclopedia. New York: Garland Publishing, Inc., 1997.

Kennedy, Susan E. The Banking Crisis of 1933. Lexington: University Press of Kentucky, 1975.

Roosevelt, Franklin D. The Public Papers and Addresses of Franklin D. Roosevelt. New York: Random House, 1938.

White, Eugene N. The Regulation and Reform of the American Banking System, 1900–1929. Princeton, NJ: Princeton University Press, 1983.

White, Lawrence J. The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation. New York: Oxford University Press, 1991.

Wicker, Elmus. The Banking Panics of the Great Depression. New York: Cambridge University Press, 1996.

Winslow, Susan. Brother, Can You Spare a Dime? America from the Wall Street Crash to pearl harbor: An Illustrated Documentary. New York: Paddington Press, 1979.

Further Reading

American Bankers Association. [cited February 20, 2002] available from the World Wide Web at http://www.aba.com.

Bondi, Victor, ed. American Decades: 1930–1939. Detroit: Gale Research Inc., 1995.

Compton, Eric N. Principles of Banking, 4th ed. Washington, DC: American Bankers Association, 1991.

Federal Deposit Insurance Corporation. [cited February 20, 2002] available from the World Wide Web at http://www.fdic.gov.

Federal Reserve System. [cited February 20, 2002] available from the World Wide Web at http://federalreserve.gov.

Fitch, Thomas P. Dictionary of Banking Terms. New York: Barron's, 1990.

Horn, James D. The Desperate Years: A Pictorial History of the Thirties. New York: Bonanza Books, 1962.

Leuchtenburg, William E. Franklin D. Roosevelt and the New Deal: 1932–1940. New York: Harper & Row, 1963.

McElvaine, Robert S. The Great Depression: America, 1929–1941. New York: Times Books, 1993.

Phillips, Cabell. From the Crash to the Blitz: 1929–1939. Toronto: The Macmillan Company, 1969.

Schlesinger, Arthur M., Jr. The Coming of the New Deal: The Age of Roosevelt. Boston: Houghton Mifflin Company, 1988.

See Also

Causes of the Crash ; Global Impact ; Housing ; New Deal (First, and Its Critics)