This article traces the development of the Banking Crisis of 1933, from its origins in the broader financial collapse following the 1929 stock market crash through the emergency legislative response of the First Hundred Days. For background on the political figure most associated with the federal response, see Franklin D. Roosevelt. For the broader economic context, see Great Depression - History.

The American banking system entering the 1920s was structurally decentralized and largely uncoordinated. The United States had thousands of independent unit banks - single-branch institutions with no geographic diversification - compared to the branch-banking systems prevalent in Europe. The Federal Reserve System, created in 1913, was less than two decades old and its member banks represented only a portion of the total banking universe. Reserve requirements and deposit insurance did not exist at the federal level.

Agricultural banks in the South and Midwest began failing in the early 1920s as commodity prices collapsed following World War I. Between 1921 and 1929, more than 5,000 banks failed - a figure largely unnoticed amid the prosperity of the broader economy. These failures established a pattern: a single bank's insolvency could trigger depositor panics at neighboring institutions, regardless of those institutions' actual solvency.

The Federal Reserve Act permitted but did not require membership, and state-chartered banks were under no obligation to join. By 1929, roughly half of all American banks operated outside the Federal Reserve System entirely, limiting the Fed's ability to act as a lender of last resort across the system as a whole.

The stock market crash of October 1929 did not immediately produce a banking crisis. Bank failures in 1930 remained within historical norms until December, when the Bank of United States - a large New York institution despite its quasi-official-sounding name - collapsed. Its failure, affecting approximately 400,000 depositors, was among the largest in American history to that point and touched off a wave of panics in the Northeast.

In 1931, the crisis spread internationally. The failure of the Austrian bank Creditanstalt in May 1931 produced a cascade of European banking failures and forced Britain off the gold standard in September. International investors, holding dollars as a gold-backed safe haven, began withdrawing gold from American banks. Domestic depositors, observing European chaos, accelerated withdrawals from American institutions.

The Federal Reserve Bank of New York raised interest rates sharply in October 1931 to defend the dollar's gold peg, a decision that reduced credit availability at precisely the moment banks needed liquidity. More than 2,000 American banks failed in 1931 alone.

The Hoover administration responded in January 1932 with the creation of the Reconstruction Finance Corporation (RFC), a federal lending agency authorized to extend emergency credit to banks, railroads, and other financial institutions. The RFC was modeled on the War Finance Corporation of World War I and represented a significant expansion of federal involvement in private credit markets.

The RFC disbursed approximately $2 billion in its first year. However, a congressional requirement enacted in July 1932 that the RFC publicly disclose the names of borrowing institutions had the unintended effect of identifying distressed banks to their depositors, accelerating runs on institutions that received RFC assistance. The disclosure requirement was later reversed, but the damage to confidence was substantial.

By late 1932, bank failures were occurring at a rate of several hundred per month. Public confidence in the banking system had eroded severely, and hoarding of currency and gold was widespread.

Herbert Hoover lost the presidential election of November 1932 to Franklin Roosevelt by a wide margin. The period between the election and Roosevelt's inauguration - then scheduled for March 4 under the pre-1933 calendar - was four months, during which Hoover remained president but was politically weakened, and Roosevelt declined to commit to any joint policy response.

Hoover wrote repeatedly to Roosevelt requesting cooperative statements on the gold standard and federal spending, arguing that uncertainty about the incoming administration's intentions was itself driving the banking panic. Roosevelt declined to make commitments that might constrain his policy options after inauguration.

State governors began declaring bank holidays - temporary closures of all banks within their states - beginning with Nevada in October 1932. Louisiana followed in February 1933. Michigan's governor declared a bank holiday on February 14, 1933, closing all banks in the state for eight days. The Michigan closure produced immediate panics in neighboring states, and by the morning of March 4, 1933 - inauguration day - governors in nearly every state had either declared or were in the process of declaring bank holidays. The New York Stock Exchange and the Chicago Board of Trade suspended trading that morning.

Roosevelt was inaugurated on March 4, 1933. His inaugural address acknowledged the banking crisis directly, attributing the nation's difficulties in language casting blame on financial elites - “the money changers have fled from their high seats in the temple of our civilization” - before outlining an emergency response.

On March 5, Roosevelt issued Proclamation 2039, declaring a national bank holiday beginning March 6 and suspending all banking transactions, including the export of gold and silver. The proclamation cited the Trading with the Enemy Act of 1917 as its legal authority, a statutory basis of uncertain applicability to a peacetime domestic financial crisis.

Congress convened in emergency session on March 9. Roosevelt submitted the Emergency Banking Act, which the House passed by voice vote after less than forty minutes of debate - some members had not yet read the bill. The Senate passed it that evening 73-7. Roosevelt signed it the same night.

The Emergency Banking Act ratified Roosevelt's bank holiday proclamation retroactively, extended the President's authority over gold and foreign exchange transactions, authorized the RFC to purchase preferred stock in banks, and created a framework for reopening banks under Treasury supervision. Banks were to be inspected and divided into three categories: those that could reopen immediately, those that could reopen after reorganization, and those that would not reopen.

On the evening of March 12, Roosevelt delivered his first radio address as president, later described as the first of his “fireside chats.” Speaking to an estimated 60 million listeners, Roosevelt explained in plain language how banks operated, why the holiday had been necessary, and why it was now safe to return deposits to reopened institutions. The address was widely credited with halting the panic.

Banks in Federal Reserve cities were authorized to reopen on March 13. Banks in cities with recognized clearing houses reopened March 14. Remaining banks followed March 15. On March 13, deposits exceeded withdrawals at reopened banks - the first such net inflow in months. The panic was over.

Of approximately 17,800 banks that had been operating before the holiday, roughly 11,000 reopened immediately. Approximately 1,000 were reorganized and reopened under supervision. The remainder - approximately 4,000 institutions - did not reopen.

The Banking Act of 1933, commonly called the Glass-Steagall Act after its sponsors Senator Carter Glass of Virginia and Representative Henry Steagall of Alabama, was signed June 16, 1933. Its principal provisions separated commercial banking from investment banking - prohibiting deposit-taking institutions from underwriting or dealing in securities - and created the Federal Deposit Insurance Corporation (FDIC), which provided federal guarantees for deposits up to $2,500 temporarily, raised to $5,000 effective July 1934.

Senator Glass had introduced versions of investment banking separation legislation repeatedly during the Hoover years; the 1933 crisis provided the political conditions for passage. Representative Steagall attached deposit insurance as a condition of his support, over the initial resistance of both Roosevelt and the Treasury.

The FDIC began operations January 1, 1934. Bank failures dropped sharply in subsequent years and mass bank panics did not recur during the Depression decade.

Some economists argue that Federal Reserve tightening in 1931, particularly the October rate increase to defend the gold peg, transformed a recession into a catastrophe - a position associated with Milton Friedman and Anna Schwartz's A Monetary History of the United States (1963); see Great Depression Monetary Policy - Debate.

The legal basis for Roosevelt's bank holiday proclamation under the Trading with the Enemy Act remains disputed among legal historians; see Emergency Banking Act 1933 - Debate.

Whether the RFC's loan program helped stabilize banks or, through its disclosure requirements, accelerated failures is contested; see Reconstruction Finance Corporation - Debate.

The Hoover-Roosevelt interregnum question - whether the crisis worsened because the incoming administration refused to coordinate with the outgoing one - remains a point of interpretive disagreement; see Hoover-Roosevelt Interregnum - Debate.

• Franklin D. Roosevelt
• Great Depression - History
• Great Depression Monetary Policy - Debate
• Emergency Banking Act 1933 - Debate
• Reconstruction Finance Corporation - Debate
• Hoover-Roosevelt Interregnum - Debate

1. Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867-1960 (Princeton University Press, 1963), chapters 7-8.
2. Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (Oxford University Press, 1992).
3. Susan Estabrook Kennedy, The Banking Crisis of 1933 (University Press of Kentucky, 1973).
4. Arthur M. Schlesinger Jr., The Coming of the New Deal (Houghton Mifflin, 1958), chapters 1-3.
5. Raymond Moley, After Seven Years (Harper & Brothers, 1939) - memoir of Roosevelt's 1932-1933 adviser; primary source for the drafting of the Emergency Banking Act.
6. Federal Reserve Board, Annual Report (1931, 1932, 1933).
7. Franklin D. Roosevelt, Fireside Chat on Banking, March 12, 1933. Published in The Public Papers and Addresses of Franklin D. Roosevelt, vol. 2 (Random House, 1938).
8. Emergency Banking Act, Pub. L. 73-1, 48 Stat. 1 (March 9, 1933).
9. Banking Act of 1933 (Glass-Steagall Act), Pub. L. 73-66, 48 Stat. 162 (June 16, 1933).
10. Presidential Proclamation No. 2039, 48 Stat. 1689 (March 6, 1933).