Emergency Banking Act
The Emergency Banking Act (the official title of which was the Emergency Banking Relief Act) was an act passed by the United States Congress in 1933 in an attempt to stabilize the banking system. Beginning on February 14, Michigan, which had been hit particularly hard by the Great Depression, declared an eight-day bank holiday. Fears of other bank closures spread from state to state as people rushed to withdraw their money just in case. Within weeks 36 other states held their own bank holidays in an attempt to stem the bank runs. The banking system seemed to be on the verge of collapse. Following his inauguration in March 1933, President Franklin Roosevelt set out to rebuild confidence in the nation's banking system, first declaring a four-day banking holiday that shut down the banking system, including the Federal Reserve. Prepared by the Treasury staff during Herbert Hoover's administration, the legislation was passed on March 9, 1933 as soon as examiners found them to be financially secure. The new law allows the twelve Federal Reserve Banks to issue additional currency on good assets and thus the banks that reopen will be able to meet every legitimate call.
The Act, which also broadened the powers of the President during a banking crisis, was divided into five sections:
To expand presidential authority during a banking crisis, including retroactive approval of the banking holiday and regulation of all banking functions, including any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold or silver coin.
To give the comptroller of the currency the power to restrict the operations of a bank with impaired assets and to appoint a conservator, who shall take possession of the books, records, and assets of every description of such bank, and take such action as may be necessary to conserve the assets of such bank pending further disposition of its business.
To allow the secretary of the treasury to determine whether a bank needed additional funds to operate and with the approval of the President request the Reconstruction Finance Corporation to subscribe to the preferred stock in such association, State bank or trust company, or to make loans secured by such stock as collateral.
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. Federal Reserve Banks are authorized to purchase government bonds either in the open market or directly from the Treasury.
Section 402. To allow the Federal Reserve banks to make secured 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)under both fixed interest rates by the Federal Reserve Bank and direct control of Federal Reserve Board.
Section 404. To give the Federal Reserve the flexibility to issue emergency currency -Federal Reserve Bank Notes- backed by any assets of a commercial bank.
Section 501. Appropriation of $20,000,000 to the President for carrying out this legislation.
Section 502. Made the act effective
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 President 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, three 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 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).
- Bryan, Dan. "The 1933 Banking Crisis -- from Detroit's Collapse to Roosevelt's Bank Holiday". American History USA. Retrieved 5 December 2014.
- 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. Missing or empty
- New York Times. April 6, 1933. p. 16. Missing or empty
- 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