Emergency Banking Act
The Emergency Banking Act (the official title of which was the Emergency Banking Relief Act) was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933. This act allows only Federal Reserve-approved banks to operate in the United States of America.
The provisions of the act were as follows:
Section 1. To affirm any orders or regulations the President or Secretary of the Treasury had given since March 4, 1933.
Section 2. During time of war or during any other period of national emergency declared by the President, the President may regulate or prohibit all monetary transactions or transfers.
Section 3. To authorize the Secretary of the Treasury to order any individual or organization in the United States to deliver any gold that they possess or have custody of to the Treasury in return for "any other form of coin or currency coined or issued under the laws of the United States".
Section 4. To make it illegal for any bank member of the Federal Reserve System to do business during a national emergency (per section 2) without the approval of the President.
To enable the Comptroller of the Currency (a post in the US Treasury) to take complete control of and operate any bank member of the Federal Reserve System in the United States or its territories and to establish the terms and conditions under which bank is administered.
To allow banks to not allow debt to extinguish the use of stock.
Section 401. To allow Federal Reserve banks to convert any US debt obligation (such as a bond) into cash at par value and any check, draft, banker acceptance, etc, into cash at 90% of its apparent value.
Section 402. To allow the Federal Reserve banks to make unsecured loans to any member bank at an interest rate of 1% over the prevailing discount rate.
Section 403. To allow Federal Reserve banks to make loans to anyone for up to 90 days if the loan is secured by a general obligation of the United States (such as a Treasury bond, for example).
Section 501. Appropriation of $2,000,000 to the President for carrying out this legislation.
Section 502. (a severability clause)
Proposal and Implementation
The Emergency Banking Act was introduced on March 9, 1933, to a joint session of Congress and was passed the same evening amid an atmosphere of chaos and uncertainty as over 100 new Democratic members of Congress swept into power determined to take radical steps to address banking failures and other economic malaise. The EBA was one of Mr. Roosevelt's first projects in the 100 days. The sense of urgency was such that the act was passed with only a single copy available on the floor of the House of Representatives and legislators voted on it after the bill was read aloud to them by Chairman of the House Banking Committee Henry Steagall. Copies were made available to senators as the bill was being proposed in the Senate, after it had passed in the House.
According to William L. Silber "The Emergency Banking Act of 1933, passed by Congress on March 9, 1933, four days after FDR declared a nationwide bank holiday, combined with the Federal Reserve’s commitment to supply unlimited amounts of currency to reopened banks, created de facto 100 percent deposit insurance. Much to everyone’s relief, when the institutions reopened for business on March 13, 1933, depositors stood in line to return their stashed cash to neighborhood banks. Within two weeks, Americans had redeposited more than half of the currency that they had squirreled away before the bank suspension. The stock market registered its approval as well. On March 15, 1933, the first day of stock trading after the extended closure of Wall Street, the New York Stock Exchange recorded the largest one-day percentage price increase ever with the Dow Jones Industrial Average gaining 8.26 points to close at 62.10; a gain of 15.34 percent. With the benefit of hindsight, the nationwide Bank Holiday and the Emergency Banking Act of March, 1933, ended the bank runs that had plagued the Great Depression."
In March 1933 President Roosevelt signed Executive Order 6102 criminalizing the possession of monetary gold by any individual, partnership, association or corporation and Congress passed a similar resolution in June of 1933.
This act was a temporary response to a major problem. The 1933 Banking Act passed later that year presented elements of longer-term response, including formation of the Federal Deposit Insurance Corporation (FDIC).
- Senate Report SR 93-549, November 19, 1973
- Robert L. Fuller, "Phantom of Fear" The Banking Panic of 1933 (2011) 195
- "Why did FDR's Bank Holiday Succeed?", Federal Reserve Bank of New York Economic Policy Review, July 2009
- Christian Science Monitor. April 5, 1933.
- New York Times. April 6, 1933 p. 16.
- Gold Repeal Joint Resolution, 48 Stat. 112, Chapter 48, H.J.Res. 192, enacted June 5, 1933
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- Full Text of the Emergency Banking Act
- Documents on the Banking Emergency of 1933 available on FRASER