Emergency Banking Act of 1933 March 9, 1933
Signed by President Franklin D. Roosevelt on March 9, 1933, the legislation was aimed at restoring public confidence in the nation's financial system after a weeklong bank holiday.
President Franklin Roosevelt signing the Emergency Banking Act (Photo: Bettmann/Bettmann/Getty Images)
by Stephen Greene
"The emergency banking legislation passed by the Congress today is a most constructive step toward the solution of the financial and banking difficulties which have confronted the country. The extraordinary rapidity with which this legislation was enacted by the Congress heartens and encourages the country." –Secretary of the Treasury William Woodin, March 9, 1933
"I can assure you that it is safer to keep your money in a reopened bank than under the mattress."
–President Franklin Roosevelt in his first Fireside Chat, March 12, 1933
Immediately after his inauguration in March 1933, President Franklin Roosevelt set out to rebuild confidence in the nation's banking system. At the time, the Great Depression was crippling the US economy. Many people were withdrawing their money from banks and keeping it at home. In response, the new president called a special session of Congress the day after the inauguration and declared a four-day banking holiday that shut down the banking system, including the Federal Reserve. This action was followed a few days later by the passage of the Emergency Banking Act, which was intended to restore Americans' confidence in banks when they reopened.
The legislation, which provided for the reopening of the banks as soon as examiners found them to be financially secure, was prepared by Treasury staff during Herbert Hoover's administration and was introduced on March 9, 1933. It passed later that evening amid a chaotic scene on the floor of Congress. In fact, many in Congress did not even have an opportunity to read the legislation before a vote was called for.
New York's deserted financial district during the bank holiday of March 1933 (left), and President Franklin Roosevelt giving a fireside chat to the American people (right) (Photo: Associated Press)
In his first Fireside Chat on March 12, 1933, Roosevelt explained the Emergency Banking Act as legislation that was "promptly and patriotically passed by the Congress ... [that] 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 that reopen will be able to meet every legitimate call. The new currency is being sent out by the Bureau of Engraving and Printing to every part of the country."
The Act, which also broadened the powers of the president during a banking crisis, was divided into five sections:
Title I expanded presidential authority during a banking crisis, including retroactive approval of the banking holiday and regulation of all banking functions, including "any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold or silver coin."
Title II gave the comptroller of the currency the power to restrict the operations of a bank with impaired assets and to appoint a conservator, who "shall take possession of the books, records, and assets of every description of such bank, and take such action as may be necessary to conserve the assets of such bank pending further disposition of its business."
Title III allowed the secretary of the treasury to determine whether a bank needed additional funds to operate and "with the approval of the President request the Reconstruction Finance Corporation to subscribe to the preferred stock in such association, State bank or trust company, or to make loans secured by such stock as collateral."
Title IV gave the Federal Reserve the flexibility to issue emergency currency—Federal Reserve Bank Notes—backed by any assets of a commercial bank.
Title V made the act effective.
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Poster Comment:
Since commercial banks are in business to make a profit, they make loans to qualified people and businesses. This means if there was a run on your local bank and people were withdrawing the cash they had on deposit, the bank would be forced to close its doors since they would not have enough cash on hand to pay out. This would be a bank failure.