Overview
The Emergency Banking Act of 1933 was passed by the Hundred Days Congress on March 9, 1933, after Franklin D. Roosevelt ordered a national “Bank Holiday” to stop bank failures and stabilize the financial system. It legalized bank closures, authorized federal officials to reorganize troubled banks, permitted the Reconstruction Finance Corporation (RFC) to invest in bank capital, and expanded the Federal Reserve’s authority to issue currency. This created a legal framework for rebuilding the banking system during the 1930s.
Essential Facts
- Date: March 9, 1933.
- President: Franklin D. Roosevelt.
- Key People: Hundred Days Congress.
- Part of: New Deal Programs.
Key Details
- Weak farm loans and a lack of bank capital contributed to instability during the 1920s.
- Thousands of bank failures undermined depositors’ confidence and triggered bank runs.
- Bank runs forced banks to sell assets for cash, which lowered asset values and deepened the crisis.
- The banking system collapsed in the last weeks of February 1933 as withdrawals spread nationwide.
- The banking crisis required quick action to stabilize the financial system.
- Congress drafted and passed the Emergency Banking Act (1933) in eight hours.
- It gave the President authority to regulate banking transactions and foreign exchange.
- It also enabled the reopening of solvent banks, restoring public confidence in the banking system.
History
Roosevelt Takes Office During the Banking Crisis
- On March 4, 1933, President Franklin D. Roosevelt took the oath of office as money markets collapsed and banks closed by the thousands.
- Roosevelt concluded that only a dramatic action and credible federal intervention could stop a complete economic collapse.
Bank Holiday
- On March 6, 1933, Roosevelt signed a proclamation that ordered a Bank Holiday, a moratorium on all banking operations in the United States.
- The Bank Holiday closed every bank in the United States.
- On Thursday, March 9, 1933, Roosevelt convened Congress in a special session to address the banking emergency. This is known as the Hundred Days Congress.
- Roosevelt submitted a bill that officials partially drafted during the final days of the Hoover Administration.
- Roosevelt’s advisers added several provisions to the bill after he took office.
- Congress and the public demanded immediate action as the crisis worsened.
- Congress passed the Emergency Banking Act within hours.
- President Roosevelt signed it on June 16, 1933.
AHC Notes
- Bank Holiday (1933) — A national shutdown of U.S. banking operations that President Franklin D. Roosevelt ordered on March 6, 1933, to stop bank runs, restore public confidence, and reopen only banks that had passed federal and state examinations under the Emergency Banking Act.
- Special Session of Congress — A Special Session of Congress is a meeting called by the President outside the regular legislative schedule to address urgent matters, such as national crises or pressing legislation. For example, President William Howard Taft convened a special session in 1909 to address tariff reform, which led to the passage of the Payne-Aldrich Tariff Act.
- Hundred Days Congress — The Hundred Days Congress refers to the special session of Congress held during the first 100 days of Franklin D. Roosevelt’s Presidency in 1933. During this period, lawmakers enacted key New Deal legislation, including financial reforms, public works programs, and agricultural assistance. These efforts aimed to combat the Great Depression and set a precedent for government intervention in economic recovery.
Key Provisions of the Emergency Banking Act
The Emergency Banking Act supplied the legal foundation for rebuilding the banking system during the 1930s.
- Title I — Legalized Roosevelt’s action of declaring a bank holiday.
- Title II — Authorized the Comptroller of the Currency to appoint a conservator who could subordinate certain depositor and stockholder interests so banks could reorganize legally.
- Title III — Permitted the Reconstruction Finance Corporation (RFC) to invest in the preferred stock or capital notes of banks and trust companies. The Roosevelt Administration expected Title III to supply long-term capital to banks and reduce short-term repayment pressure on debts owed to the RFC.
- Title IV — Permitted Federal Reserve Banks to discount assets that previously did not qualify and to issue new Federal Reserve notes based on those assets, and sought to reduce currency shortages in certain regions of the country.
- Title V — Provided $2 million to carry out the law.
AHC Notes
- Reconstruction Finance Corporation — A federal lending agency created in January 1932 to stabilize the financial system during the Great Depression by providing loans to banks and other institutions, later expanded under the New Deal to recapitalize banks through stock purchases and to finance and supervise major recovery programs.
- Solvent Banks — Financial institutions with enough assets to cover their liabilities and meet obligations. During the Great Depression, solvent banks were those deemed financially stable enough to reopen after inspections conducted under the Emergency Banking Relief Act (1933). These inspections helped restore public trust by ensuring that only reliable banks resumed operations, stabilizing the U.S. banking system.
- Federal Reserve System — Created by the Federal Reserve Act of 1913, the Federal Reserve System became the United States’ central banking structure, designed to regulate the money supply and stabilize the financial system after repeated banking disputes and renewed pressure following the Panic of 1907. Under Woodrow Wilson’s leadership and with bipartisan support, the law established 12 regional Federal Reserve banks and a president-appointed Federal Reserve Board to set policy. By influencing interest rates and the terms under which banks accessed funds, the system could expand or restrict credit and support financial transactions through Federal Reserve notes. Critics argued that it favored large banks and blamed it for the 1929 collapse that caused the Great Depression.
Immediate Success
- During the banking crisis, the public withdrew more than $1.75 billion from banks.
- When banks reopened, customers returned to deposit nearly two-thirds of what had been withdrawn.
- On March 15, the New York Stock Exchange rose more than 15%.
AP US History (APUSH)
Alignment
The Emergency Banking Act of 1933 is part of the following units, topics, and chapters in the AP US History curriculum:
Definition
Emergency Banking Act (1933) — A law Congress passed on March 9, 1933, after Franklin D. Roosevelt ordered a national “Bank Holiday” to stop bank failures and stabilize the financial system. It legalized the shutdown, allowed federal officials to reorganize troubled banks, permitted the Reconstruction Finance Corporation (RFC) to invest in bank capital, and expanded the Federal Reserve’s ability to issue currency, creating a legal framework for rebuilding the banking system during the 1930s.
