Emergency Banking Act Of 1933

The U.S. economy boomed for most of the 1920s, but started to get really shaky by the end of the decade. This culminated in the stock market crash of 1929, which acted as the curtain raiser for the Great Depression. Things got bad quickly. Businesses collapsed. Unemployment skyrocketed. There was foreclosures and ruination...real Grapes of Wrath-type stuff.

In 1932, Franklin Roosevelt was elected president. He was inaugurated on March 4, 1933. Under FDR's guidance, Congress immediately started passing new legislation to fight the impact of the Great Depression. We mean immediately. As an example, there's the Emergency Banking Act Of 1933, which was passed, signed, and became effective by March 9...five days after the inauguration.

The goal of the act was to stabilize the banking system after a series of failures during the Depression had sapped people's trust in financial institutions. People had begun pulling money out of banks...money the banks couldn't really afford to give them. Some states had declared bank holidays to avert a crisis. FDR declared a federal bank holiday on March 6. The Emergency Banking Act was meant to restore trust when the banks reopened.

The act gave the government additional oversight over the banking system and empowered the Federal Reserve to issue currency in the form of Federal Reserve Bank Notes, a power that would allow the Fed to provide a backstop to failing banks.

The bid to restore confidence worked. Banks reopened on March 13 and people streamed back into them to return the money they had recently withdrawn. According to the Fed, people redeposited about two-thirds of the cash they had taken out during the runs on banks that took place prior to the passage of the act.