Why did FDR's bank holiday succeed?
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.
Volume (Year): (2009)
Issue (Month): Jul ()
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- 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.
- Awalt, Francis Gloyd, 1969. "Recollections of the Banking Crisis in 1933," Business History Review, Cambridge University Press, vol. 43(03), pages 347-371, September.
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- 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(03), pages 739-755, September.
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