Bank holiday (March 6, 1933)
The Bank Holiday on March 6, 1933, was a pivotal moment in American financial history, initiated by President Franklin D. Roosevelt in response to the severe economic turmoil following the 1929 stock market crash. This period was characterized by widespread bank failures and a lack of public confidence in financial institutions. The Bank Holiday involved the temporary closure of banks across the United States, allowing the government to assess and stabilize the banking system through the Emergency Banking Relief Act. This legislation granted the federal government significant powers, including the authority to reorganize insolvent banks and implement measures to restore public trust.
During the four-day closure, the government also sought to manage the hoarding of currency, which was exacerbating the crisis. When banks reopened, the public responded positively, with many depositors returning their savings, leading to a rapid recovery of funds in the banking system. Additionally, the resumption of stock trading on March 15 resulted in a historic surge in stock prices. Overall, the Bank Holiday marked a crucial step towards restoring confidence in the American economy and laid the groundwork for subsequent financial reforms.
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Bank holiday (March 6, 1933)
The Event Federal legislation associated with the reorganization of insolvent banks following the banking crisis of 1933
Date March 6, 1933
In response to a string of bank failures in late 1932 and early 1933, President Franklin D. Roosevelt declared that all banks in the United States would be closed until the U.S. Treasury could verify their financial stability. Followed by Congress’s creation of the Emergency Banking Relief Act, the closing of financial institutions was a step in the direction of tighter federal control of American financial institutions.
Because of the economic chaos following the stock market collapse of 1929 and several subsequent years of ineffective government measures to mitigate the collapse of banks, President Roosevelt called a joint session of the Congress in March, 1933, to pass the Emergency Banking Relief Act. The government established the right to certain emergency powers over financial institutions. For example, it could declare that banks could not open during times of emergency—“bank holidays.” The federal government could take control of insolvent banks and reorganize them.
Further, recognizing the need for consumer trust, the government introduced several measures designed to discourage depositors from withdrawing and hoarding hard currency such as gold. The Emergency Banking Relief Act and, later, the Gold Reserve Act of 1934 allowed the federal government the right to request the return of privately held gold. In return, the act also established the commitment of the federal government to insure depositor funds—a promise to Americans that they would never again lose their life savings because of the closing of a bank.
Impact
The response to Roosevelt’s Banking Act was a remarkable show of trust and faith in a president’s leadership. When President Roosevelt allowed American banks to open after the four-day Bank Holiday, depositors reentered their neighborhood banks in large numbers to redeposit their savings. In only two weeks, almost 50 percent of withdrawn currency had been returned to depositor accounts. Further, when stock trading resumed on March 15, 1933, the New YorkStock Exchange closed with the largest one-day rise in stock prices ever recorded.
Bibliography
Kiewe, Amos. FDR’s First Fireside Chat: Public Confidence and the Banking Crisis. College Station: Texas A&M University Press, 2007.
Silber, William L. “Why Did FDR’s Bank Holiday Succeed?” Federal Reserve Bank of New York Economic Policy Review (July, 2009).