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Emergency Banking Act of 1933

Candlefocus Editor
The Emergency Banking Act of 1933, was Congress' response to the widespread bank failures that occurred during the Great Depression. The Act was passed on March 9, 1933, just three days after President Franklin D. Roosevelt gave his first "fireside chat" to the nation.The Act closed all banks in order to calm a public concerned about the effects of bank runs and crumbling confidence in the financial system. All banks were closed on ApriL 5, 1933 while employees reviewed the books and determined which banks are viable and which do not have sufficient funds to remain open.

The Act was signed by President Roosevelt on the same day that it was proposed and provided the president with unprecedented executive powers to address financial crises. It also created the Federal Deposit Insurance Corporation (FDIC), which still exists today, and insured bank deposits.

The Act was designed to restore faith in the American banking system, in part by allowing banks which can meet certain liquidity standards to be issued a "certificate of public convenience and necessity." Banks which were unable to meet the standards were to be liquidated. This certification process lasted for several months and eventually over 6,000 banks were reinstated and almost 800 liquidated.

The Act also allowed the Federal Reserve to increase the amount of currency in circulation, which increased public confidence and provided the banking system with much-needed liquidity. The Act not only provided measures to restore confidence but also injected additional capital into the banking system, with additional funds being made available by the authorizing the Secretary of the Treasury to purchase government securities.

The Emergency Banking Act of 1933 is credited with helping to turn the tide during the Great Depression by providing the much needed measures to restore confidence in the banking system and by providing additional liquidity to the market. Its provisions have endured to this day, most notably the insuring of bank deposits by the FDIC and the executive powers it afforded to the President of the United States to respond to financial crises.

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