Banking in The United States - New Deal-era Reforms

New Deal-era Reforms

During the 1930s, the U.S. and the rest of the world experienced a severe economic contraction that is now called the Great Depression. In the U.S. during the height of the Great Depression, the official unemployment rate was 25% and the stock market had declined 75% since 1929. Bank runs were common because there wasn't insurance on deposits at banks, banks kept only a fraction of deposits in reserve, and customers ran the risk of losing the money that they had deposited if their bank failed.

By the beginning of 1933, the banking system in the United States had effectively ceased to function. The incoming Roosevelt administration and the incoming Congress took immediate steps to pass legislation to respond to the Great Depression. Roosevelt entered office with enormous political capital. Americans of all political persuasions were demanding immediate action, and Roosevelt responded with a remarkable series of new programs in the “first hundred days” of the administration, in which he met with Congress for 100 days. During those 100 days of lawmaking, Congress granted every request Roosevelt asked, and passed a few programs (such as the FDIC to insure bank accounts) that he opposed.

A major component of Roosevelt's New Deal was reform of the nation's banking system. With strident language Roosevelt took credit for dethroning the bankers he alleged had caused the debacle.