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Authors:
Ellen Terrell, Business Librarian, Science & Business Reading Room
Created: February 2023
Updated: February 2024
The United States was in the grip of what is now called the Great Depression that began in 1929. People were out of work and scared about the economy. Belief in Wall Street and the country's banking system was shaken and the banking system was buckling under the pressure. For three years, hundreds of banks failed and other issues were appearing that were straining the system further. Franklin D. Roosevelt was inaugurated on March 4, 1933 and got right to work.
Less than 48 hours into his presidency, he issued Proclamation 2039 which suspended all banking activity. It said in part:
Now, Therefore I, Franklin D. Roosevelt, President of the United States of America, in view of such national emergency and by virtue of the authority vested in me by said Act and in order to prevent the export, hoarding, or earmarking of gold or silver coin or bullion or currency, do hereby proclaim, order, direct and declare that from Monday, the Sixth day of March, to Thursday, the Ninth day of March, Nineteen Hundred and Thirty-three, both dates inclusive, there shall be maintained and observed by all banking institutions and all branches thereof located in the United States of America, including the territories and insular possessions, a bank holiday, and that during said period all banking transactions shall be suspended. During such holiday, excepting as hereinafter provided, no such banking institution or branch shall pay out, export, earmark, or permit the withdrawal or transfer in any manner or by any device whatsoever, of any gold or silver coin or bullion or currency or take any other action which might facilitate the hoarding thereof; nor shall any such banking institution or branch pay out deposits, make loans or discounts, deal in foreign exchange, transfer credits from the United States to any place abroad, or transact any other banking business whatsoever.1
This meant for days, there were no withdrawals, transfers, or deposits.
On March 9th, another Proclamation was issued continuing the closure. That one day extension wasn't wasted—the Emergency Banking Act or the Emergency Banking Relief Act (Public Law 73-1, 48 Stat. 1) was passed on March 9, 1933, in an attempt to stabilize the banking system. Once the legislation was passed, the President issued Executive Order 6073 on March 10, 1933:
The Secretary of the Treasury is authorized and empowered under such regulations as he may prescribe to permit any member bank of the Federal Reserve System and any other banking institution organized under the laws of the United States, to perform any or all of their usual banking functions, except as otherwise prohibited.
The appropriate authority having immediate supervision of banking institutions in each State or any place subject to the jurisdiction of the United States is authorized and empowered under such regulations as such authority may prescribe to permit any banking institution in such State or place, other than banking institutions covered by the foregoing paragraph, to perform any or all of their usual banking functions, except as otherwise prohibited.
All banks which are members of the Federal Reserve System, desiring to reopen for the performance of all usual and normal banking functions, except as otherwise prohibited, shall apply for a license therefor[e] to the Secretary of the Treasury.2
And with that, the banks began to reopen. The president had more to say about the situation on March 12th, when he gave his first Fireside Chat and devoted the entire discussion to the banking crisis and the Bank Holiday:
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 or gold—a rush so great that the soundest banks could not get enough currency to meet the demand. 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.
By the afternoon of March 3d scarcely a bank in the country was open to do business. Proclamations temporarily closing them in whole or in part had been issued by the Governors in almost all the States.
It was then that I issued the proclamation providing for the nationwide bank holiday, and this was the first step in the Government's reconstruction of our financial and economic fabric.3
The federal government did turn to the question of regulating banks later that year when the Banking Act of 1933 (Pub. L. 73–66, 48 Stat. 162, enacted June 16, 1933) was signed into law. This law created the Federal Deposit Insurance Corporation (FDIC) as a temporary agency, and two years later the Banking Act of 1935 (Pub. L. 305, 49 Stat. 684, enacted August 23, 1935) was passed which made the FDIC a permanent agency.
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