Today in History: Emergency Banking Act Signed

Today in History: Emergency Banking Act Signed

by M.C. Millman

On March 9, 1933, President Franklin D. Roosevelt signed the Emergency Banking Act to restore public confidence in the nation's banking system. 

When President Roosevelt was inaugurated, the country was crippled by the Great Depression for nearly four years. Many people did not trust the banks, which caused them to withdraw their money and store it away at home instead of banks. Many states attempted to limit the amount of money one could withdraw from the banks. However, "withdrawals surged as continuing bank failures heightened anxiety and, in a vicious cycle, spurred still more withdrawals and failures," according to Investopedia.

Roosevelt set out to change this by calling a special session of Congress the day after the inauguration. He declared a four-day banking holiday that shut down the banking system, including the Federal Reserve. The holiday was used to inspect banks to ensure they were financially stable before being allowed to resume operations. These inspections aimed to establish trustworthiness and reassure citizens that the federal government was monitoring the financial systems. 

The Act also created the Federal Deposit Insurance Corporation (FDIC), which insured bank accounts for up to $2,500 at no cost. It also gave the president executive power during times of financial crisis, allowing the president to operate independently of the Federal Reserve. 

"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," said Secretary of the Treasury William Woodin on March 9, 1933. "The extraordinary rapidity with which this legislation was enacted by the Congress heartens and encourages the country."

Banks began to reopen from March 13-15, and customers lined up to deposit their cash. According to Investopedia, "currency held by the public had increased by $1.78 billion in the four weeks ending March 8. By the end of March, though, the public had redeposited about two-thirds of this cash."

photo credit: Flickr

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