jan 1, 1933 - Glass Steagall Act

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A collapsing banking system hobbled the entire economy, curtailing consumer spending and business investment. Widespread bank failures had reduced the savings of nearly nine million families, and “runs” by panicked depositors seeking to withdraw all their funds at once threatened to cause even more failures. On March 5, 1933, the day after his inauguration, FDR declared a national “bank holiday” — closing all banks — and called Congress into special session. Four days later, Congress passed the Emergency Banking Act, which permitted banks to reopen once a Treasury Department inspection showed they had sufficient cash reserves.

In the first of his Sunday night fireside chats, the president reassured a radio audience of sixty million that their money was safe. When the banking system partially reopened on March 13, calm prevailed and deposits exceeded withdrawals, restoring stability to the nation’s basic financial institutions. “Capitalism was saved in eight days,” quipped Roosevelt’s advisor Raymond Moley. Four thousand banks had failed in the months prior to Roosevelt’s inauguration; only sixty-one closed their doors in all of 1934 (Table 22.1). A second banking law, the Glass-Steagall Act (A 1933 law that created the Federal Deposit Insurance Corporation (FDIC), which insured deposits up to $2,500 (and now up to $250,000). The act also prohibited banks from making risky investments with customers’ deposits.), further restored public confidence by creating the Federal Deposit Insurance Corporation (FDIC), which insured deposits up to $2,500 (and now insures them up to $250,000). The act also prohibited banks from making risky investments with the deposits of ordinary people. And in an important economic and symbolic gesture, Roosevelt removed the U.S. Treasury from the gold standard in June 1933. This allowed the Federal Reserve to lower interest rates, which gave farms and businesses an economic lifeline in the form of low-cost loans.

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