|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26290
|
| Title: | Why Did FDR’s Bank Holiday Succeed? |
| Authors: | L. Silber*, William |
| Keywords: | Bank Holiday
Great Depression
Federal Reserve
Deposit Insurance |
| Issue Date: | Aug-2007 |
| Series/Report no.: | FIN-07-004 |
| Abstract: | After a month-long run on American banks, Franklin Delano Roosevelt
proclaimed a Bank Holiday beginning March 6, 1933 that shut down the
banking system. When banks reopened on March 13, 1933, depositors stood
in line to return their hoarded cash. This paper traces the remarkable
turnaround in the public’s confidence to the Emergency Banking
Act, passed by Congress on March 9, 1933. Roosevelt used the emergency
currency provisions of the Act to prod the Federal Reserve to create de
facto deposit insurance in the reopened banks. The contemporary press
confirms that the public recognized the implicit guarantee, and as a
result, believed the President’s words in his first Fireside Chat
on March 12, 1933, that the reopened banks would be safe. The public
responded by returning more than half of their hoarded cash to the banks
within two weeks and by bidding up stock prices on March 15, 1933, the
first trading day after the Bank Holiday ended, by the largest ever
one-day percentage price increase. The Bank Holiday and the Emergency
Banking Act of 1933 reestablished the integrity of the payments system
and demonstrated the power of credible regime-shifting policies. |
| URI: | http://hdl.handle.net/2451/26290 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
