Why Did FDR’s Bank Holiday Succeed?

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.