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Why did FDR's bank holiday succeed?

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  • William L. Silber

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 the banks reopened on March 13, depositors stood in line to return their hoarded cash. This article attributes the success of the Bank Holiday and 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 encourage the Federal Reserve to create de facto 100 percent deposit insurance in the reopened banks. The contemporary press confirms that the public recognized the implicit guarantee and, as a result, believed that the reopened banks would be safe, as the President explained in his first Fireside Chat on March 12, 1933. Americans responded by returning more than half of their hoarded cash to the banks within two weeks and by bidding up stock prices by the largest ever one-day percentage price increase on March 15--the first trading day after the Bank Holiday ended. The study concludes that the Bank Holiday and the Emergency Banking Act of 1933 reestablished the integrity of the U.S. payments system and demonstrated the power of credible regime-shifting policies.

Suggested Citation

  • William L. Silber, 2009. "Why did FDR's bank holiday succeed?," Economic Policy Review, Federal Reserve Bank of New York, vol. 15(Jul), pages 19-30.
    • Handle: RePEc:fip:fednep:y:2009:i:jul:p:19-30:n:v.15no.1
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    References listed on IDEAS

    as
    1. William L. Silber, 2007. "Introduction to When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy," Introductory Chapters, in: When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy, Princeton University Press.
    2. Charles W. Calomiris & Eugene N. White, 1994. "The Origins of Federal Deposit Insurance," NBER Chapters, in: The Regulated Economy: A Historical Approach to Political Economy, pages 145-188, National Bureau of Economic Research, Inc.
    3. Lockwood, Larry J & Linn, Scott C, 1990. "An Examination of Stock Market Return Volatility during Overnight and Intraday Periods, 1964-1989," Journal of Finance, American Finance Association, vol. 45(2), pages 591-601, June.
    4. French, Kenneth R. & Roll, Richard, 1986. "Stock return variances : The arrival of information and the reaction of traders," Journal of Financial Economics, Elsevier, vol. 17(1), pages 5-26, September.
    5. Wigmore, Barrie A., 1987. "Was the Bank Holiday of 1933 Caused by a Run on the Dollar?," The Journal of Economic History, Cambridge University Press, vol. 47(3), pages 739-755, September.
    6. Temin, Peter & Wigmore, Barrie A., 1990. "The end of one big deflation," Explorations in Economic History, Elsevier, vol. 27(4), pages 483-502, October.
    7. Awalt, Francis Gloyd, 1969. "Recollections of the Banking Crisis in 1933," Business History Review, Cambridge University Press, vol. 43(3), pages 347-371, October.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Inflation and Fiscal Policy
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2016-09-12 18:01:59

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    Cited by:

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    2. Jonathan D. Rose, 2015. "Old-Fashioned Deposit Runs," Finance and Economics Discussion Series 2015-111, Board of Governors of the Federal Reserve System (U.S.).
    3. Gary Gorton, 2015. "Stress for Success: A Review of Timothy Geithner's Financial Crisis Memoir," Journal of Economic Literature, American Economic Association, vol. 53(4), pages 975-995, December.
    4. Chwieroth, Jeffrey M. & Walter, Andrew, 2019. "The financialization of mass wealth, banking crises and politics over the long run," LSE Research Online Documents on Economics 100765, London School of Economics and Political Science, LSE Library.

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