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The Banking Crisis of 1933

The Banking Crisis of 1933

Susan Estsbrook Kennedy
Copyright Date: 1973
Pages: 280
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  • Book Info
    The Banking Crisis of 1933
    Book Description:

    On March 6, 1933, Franklin D. Roosevelt, less than forty-eight hours after becoming president, ordered the suspension of all banking facilities in the United States. How the nation had reached such a desperate situation and how it responded to the banking "holiday" are examined in this book, the first full-length study of the crisis.

    Although the 1920s had witnessed a wave of bank failures, the situation worsened after the 1929 stock market crash, and by the winter of 1932-1933, complete banking collapse threatened much of the nation. President Hoover's stopgap measures proved totally inadequate, the author shows, and by March 4, the day of Roosevelt's inauguration, thirty-four states had declared banking moratoriums. Of special interest in this study is Ms. Kennedy's examination of relations between Herbert Hoover and Franklin D. Roosevelt.

    eISBN: 978-0-8131-6330-7
    Subjects: History, Political Science, Finance

Table of Contents

    (pp. ix-x)
    Susan Estabrook Kennedy
  2. CHAPTER I Prosperity and Depression
    (pp. 1-21)

    ON WEDNESDAY morning, December 11, 1930, the New York State commissioner of banks closed the Bank of United States in New York City, locking up over $286 million belonging to more than 400,000 persons. Confused and disillusioned depositors had had no warning that a combination of inadequate supervision and criminal mismanagement had so jeopardized their small savings, and concerned citizens now wondered about the safety of deposits in other banks. Some even speculated that the collapse of the “Bank of United States” implied that the government’s own bank had failed.

    The Bank of United States had been chartered under the...

  3. CHAPTER II Hoover’s Solutions
    (pp. 22-53)

    OF THE MEN available to cope with the depression, the new president, Herbert Hoover, appeared most capable. Hoover had taken office with the statement that the nation would have to deal only with “problems of progress to higher standards.”¹ When Coolidge prosperity ended seven months later, however, Hoover held unimpeachable credentials for the job of recovery. He had more than achieved his boyhood goal– “to earn my own living without the help of anybodyu”²–and might guide the nation to do the same.

    Already a successful consulting engineer before the outbreak of World War I, he was called upon by...

  4. CHAPTER III Election and Interregnum
    (pp. 54-76)

    THE HOOVER administration faced the ultimate test of its policies, including those on banking, in 1932 when the president stood for reelection. That campaign would bring out vital depression issues, and on November 8, Hoover would learn whether the voters agreed with his efforts to solve the economic crisis or hoped for greater success from another approach.

    At the same time, the president had to govern a nation suffering from severe banking problems. If the election returns proved favorable, he could continue those operations which the electorate had endorsed. But if he was defeated, Hoover would still have to finish...

  5. CHAPTER IV Michigan
    (pp. 77-102)

    SHORTLY after midnight on Tuesday, February 14,1933, Governor William A. Comstock closed the banks of Michigan for eight days–tacit admission of the collapse of that state’s banking structure and prelude to the national banking disaster three weeks thereafter. Years later writers would label this emergency a “time bomb,” “an infection of panic spreading across the country,” and the end of “an era in which ‘Detroit the Dynamic’ overreached itself.”¹ To Charles and Mary Beard, “the news from Michigan jangled the American System from center to periphery.”²

    Banking had lagged twenty-five years behind the phenomenal growth of population and industry...

  6. CHAPTER V Investigation
    (pp. 103-128)

    ON THE HEELS of the Michigan banking moratorium, precisely when they most needed moral support, America’s commercial bankers endured nine days of shatteringly bad publicity. Revelations before the Senate Banking and Currency Committee about business practices within the National City Bank of New York profoundly shocked the “moral sense of the nation.”¹ Although the bankers were guilty of most of the charges, the timing of these “confessions” in the last days of February 1933 focused public reproach on them when they were most vulnerable to popular reactions. With Michigan down and other states such as Maryland slipping, any further loss...

  7. CHAPTER VI Exit Hoover
    (pp. 129-151)

    THE FUNERAL of former President Calvin Coolidge on January 7,1933, tolled requiem over the age of prosperity, laissez-faire, and voluntary action. Mounting bank failures and disillusioning publicity frightened depositors into withdrawing currency. When an impotent administration could not save the banking system of an entire state, the Michigan moratorium, as well as a disheartening recitation of bankers’ sins before the Pecora hearings, unsettled a public confidence already trembling from bank closings and contraction of credit.

    Each of these problems might have been avoided singly, but in concert they overwhelmed a regime which felt its lack of legitimacy deeply. Eugene Meyer...

  8. CHAPTER VII Enter Roosevelt
    (pp. 152-178)

    AT 1:06 on the afternoon of Saturday, March 4,1933, during a near-total banking eclipse, Franklin Delano Roosevelt took the oath of office as president of the United States. Despite the closing of over 5,000 banking institutions since 1931, Roosevelt refused to slink into the presidency as the inheritor of Hoover’s tragedy. He rejected the idea of cancelling the inaugural parade, choosing instead to adopt Hoover’s own theme of confidence and to make it work for him. As the two men rode together to the Capitol, Hoover sat immobile before the cheering crowd; Roosevelt, at first embarrassed by his predecessor’s silence,...

  9. CHAPTER VIII Reopening
    (pp. 179-202)

    FRANKLIN ROOSEVELT had acted rapidly to save banking in the short run. In less than one week, the president closed the nation’s banks, promised that they would reopen, provided interim services, and went to the Congress with enabling legislation. At the same time, he revived confidence in the government and offered reassurances about his economic policies. During his first press conference, on March 8, Roosevelt stated clearly that the gold standard was safe, that the nation would have an adequate but sound currency, and that, although the government would not guarantee bank deposits, it would try “to keep the loss...

  10. CHAPTER IX The Banking Act of 1933
    (pp. 203-223)

    ON JUNE 16,1933, President Franklin D. Roosevelt signed into law the Banking Act of 1937, the first serious and partially successful piece of legislation directed at the fundamental causes rather than the symptoms of the American banking collapse. Earlier statutes and edicts had corrected only visible problems. The Emergency Banking Act of 1933, passed on March 9, reopened solvent banks under license and legalized certain categories of aid to reorganize or liquidate closed banks. Other laws, such as the act of March 22 permitting Federal Reserve loans to nonmember banks, also sought to alleviate immediate uncertainties without altering the structure....

  11. CHAPTER X Conclusion
    (pp. 224-236)

    FUNDAMENTAL flaws in American banking underlay the crisis of 1933. Had the structure itself been sound, the nation’s banks might have withstood those human failings of greed and bad management, as well as the pressures of economic decline, which added to the disaster. As it was, however, the system suffered in too many areas from undercapitalization, overbanking, inadequate supervision, and faulty organization. When tested, it could not muster the necessary strength, and it suffered a series of bank failures so great as to threaten every financial institution in the country.

    The history of banking in the United States reveals constant...