Franklin Delano Roosevelt was inaugurated on Saturday, March 4, 1933 in the depths of the Great Depression.
On March 6, he issued Proclamation 2039, which suspended all banking activity and effectively created a “Bank Holiday.” He extended it on March 9th, and he signed the Emergency Banking Relief Act (Public Law 73-1, 48 Stat. 1), the first law of the new Congress. Finally, on March 10, he issued Executive Order 6073, which began the reopening process that ended the Bank Holiday. He had not been in office for a full week.
At the time, the Great Depression was the main worry for America. It was clear that people were scared and confused by everything that was going on with the banks and the economy, so President Roosevelt reached out directly to them via radio address. On March 12th he gave the first of his fireside chats and got right to the point:
I want to talk for a few minutes with the people of the United States about banking—with the comparatively few who understand the mechanics of banking but more particularly with the overwhelming majority who use banks for the making of deposits and the drawing of checks. 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.
He then went on to explain a bit about banking.
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 of industry and of agriculture turning around. A comparatively small part of the money you put into the bank 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 or gold—a rush so great that the soundest banks could not get enough currency to meet the demand.
Then he made sure to tell listeners what he, and Congress, did to try to stabilize the situation.
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.
The second step was the legislation promptly and patriotically passed by the Congress confirming my proclamation and broadening my powers so that it became possible in view of the requirement of time 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.
Roosevelt also made sure to include the next steps, and did so in a way that would be clear to listeners. Banks would reopen gradually; on Monday, banks in the twelve Federal Reserve Bank cities would open, and the next day banks in about 250 additional cities would also open.
This bank holiday, while resulting in many cases in great inconvenience, is affording us the opportunity to supply the currency necessary to meet the situation. No sound bank is a dollar worse off than it was when it closed its doors last Monday. Neither is any bank which may turn out not to be in a position for immediate opening. 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. The new currency is being sent out by the Bureau of Engraving and Printing in large volume to every part of the country. It is sound currency because it is backed by actual, good assets.
A question you will ask is this: why are all the banks not to be reopened at the same time? The answer is simple. Your Government does not intend that the history of the past few years shall be repeated. We do not want and will not have another epidemic of bank failures.
This was only the first chat (the National Archives has a recording for those who want to hear it directly from the President). He continued his fireside chats — 30 of them — and used them as a way to connect directly with the American public on a variety of topics, including one on the Declaration of War with Japan on December 9, 1941, as well as others on the economy, unemployment, and the New Deal. You can find news about other Fireside Chats and other stories the banking situation as well as the text of Proclamation 2039 in Chronicling America*.
The government was also not finished trying to stabilize the banking situation — in June 1933 Congress passed the Banking Act of 1933 which created the Federal Deposit Insurance Corporation (FDIC) as a temporary agency. In 1935, the FDIC was made a permanent agency by the Banking Act of 1935.
And for anyone interested in researching the Bank Holiday itself, we have collected a few resources as part of our This Month in Business History series.
*The Chronicling America historic newspapers online collection is a product of the National Digital Newspaper Program and jointly sponsored by the Library and the National Endowment for the Humanities.
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What a fascinating, informative and timely post! Great stuff.
Hopefully, the Dems will revisit what FDR did. We could use some real down to earth leadership to combat the sea of ignorance that engulfs us.