Emergency Banking Act - Proposal and Implementation

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 and most legislators voted on it without reading it.

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).