United States: National Bank Holiday, 1933

Amid the economic uncertainty of the Great Depression, the US banking system was experiencing sustained runs in 1933. On February 14, 1933, the governor of Michigan declared a statewide bank holiday, beginning a series of widespread state bank holidays throughout the country (St. Louis Fed 2021).

Over two business days on March 2 and 3, the Federal Reserve System lost $200 million in gold and $150 million in currency.^FAppendix B shows the weekly deterioration of deposits in the banking system and the subsequent recovery (Jaremski, Richardson, and Vossmeyer 2023). On March 3, the Federal Reserve Board suspended the requirement that Federal Reserve Banks hold at least 40% of currency in gold. While the system’s reserves were above 40% overall, the New York Fed’s were at 24% (Awalt 1969; Fed 1934).

Early on the morning of Saturday, March 4, the Federal Reserve Board considered three options to address the dwindling cash and gold reserves at the Reserve Banks: declaring a nationwide bank holiday, suspending specie payments, or suspending banks’ reserve requirements. The Board decided to recommend a bank holiday. However, Hoover declined to approve the measure “in the last few hours of this administration” (Meltzer 2003, 388). To achieve the same outcome, Fed and Treasury officials urged the governors of New York and other key banking states to close their banks on Saturday morning, before business opened on March 4, and most complied. All 12 reserve banks also closed (Awalt 1969; Boston Fed 1996; Rockoff 1993).

Thus, a de facto national bank holiday was already in place on the day that the Roosevelt administration began. However, the terms varied between mandatory and voluntary, and many, but not all, states allowed depositors to withdraw up to 5% of their money. This feature had not prevented many depositors from withdrawing as much as they could, creating a liquidity drain for Federal Reserve Banks in their districts (Awalt 1969; Boston Fed 1996; Wicker 1996).

The purpose of a national bank holiday was to impose a uniform set of restrictions on all banks and allow for the development of adequate means of handling the national emergency (US Government 1933). As the Fed noted in its 1933 annual report: “An important purpose of this action was to attack the problem of bank failures comprehensively by reviewing at one time the condition of all banks and reopening only such banks as could meet all demands upon them. This procedure was intended both to assure more equitable treatment as between the depositors who were making withdrawals and those who were not, and to restore confidence in the banking situation as a whole” (Fed 1934, 10).

Joint consultations between existing Treasury and Federal Reserve officials and incoming members resulted in three immediate action items for the new president:

• (a) Use the Trading with the Enemy Act of 1917 to declare a national bank holiday.
• (b) Call a special session of Congress to validate and extend the holiday and pass new legislation for bank reopening.
• (c) Summon bank leadership from several major cities (New York City, Chicago, Philadelphia, Baltimore, and Richmond) for immediate consultation (Kennedy 2014).

On March 5, 1933, an assembly of bankers from the major cities advised that a holiday was necessary. The incoming president rejected the suggestion of federal deposit insurance, as Fed officials had the week before. Before declaring the holiday, Roosevelt required that the Treasury secretary have emergency legislation ready for passage through Congress by March 9. Having been convinced of the legality of using the Trading with the Enemy Act by his attorney general, Roosevelt decided that the national bank holiday was indeed necessary (Awalt 1969; Kennedy 2014; Roosevelt 1934). He was “fully convinced that the drastic action of closing the banks was necessary in order to prevent complete chaos on Monday morning” (Roosevelt 1934, 4).

Late on the evening of March 5, Roosevelt issued Proclamation 2039, declaring a national bank holiday through March 9. It suspended all banking activity and banned the exportation of gold outside the country. The objective then became implementing a plan to reopen banks as soon as possible while ensuring that only viable banks commenced business again (Roosevelt 1933a; Roosevelt 1934; Silber 2009).

Discouraging Hoarding

The presidential proclamations prohibited buying or selling gold in any form other than jewelry, and this prohibition lasted until 1974. In his radio address on March 12, 1933, President Roosevelt characterized the hoarding of currency as an “exceedingly unfashionable pastime” (Roosevelt 1933c, 3). The Treasury Department requested a list from the Federal Reserve of large gold withdrawals that had not been returned by the start of the phased reopening on March 13. Various states took legal efforts to further discourage hoarding following the resumption of bank operations. For example, Kansas lawmakers passed a resolution to publicly disclose the names of individuals who drew any amount larger than $500 when banks reopened. The New York Times reported that $200 million in gold returned to the banking system by the close of business on Friday, March 10, as depositors feared fines or imprisonment (Boston Fed 1996; NYT 1933j; NYT 1933l).

Promoting Liquidity

During the holiday, checks served as an important means of payment alongside the small withdrawals permitted for essential use; retailers and service providers also accepted money orders, credit, and even nontradable goods as payment (Kennedy 2014).

At first, a popular idea among Treasury officials and other advisers in both administrations was to encourage clearinghouses to issue clearinghouse certificates as an alternative to currency during and after the bank holiday. President Roosevelt included the idea in Proclamation 2039 on March 5, and in several cities, clearinghouses rapidly began to print such certificates and banks made arrangements to pledge the required assets. Some jurisdictions went further. On March 7, the New York Times reported that New York Governor Herbert Lehman had signed state legislation authorizing the creation of a corporation that would issue a statewide scrip, arguing that no city-based clearinghouse could provide the banking needs of the whole state (NYT 1933h). In a separate article, the Times reported that Treasury officials supported local clearinghouse certificates and had dismissed the idea of a national government scrip, possibly issued through the Reconstruction Finance Corporation. The Treasury approved Lehman’s plan on March 7 and withdrew that approval on March 8 (CFC 1933b; NYT 1933h).

The Treasury was still working toward some kind of national plan. On March 7, 1933, the Treasury secretary issued Regulation No. 12, authorizing the 250 clearinghouses in the country to issue certificates against sound bank assets, but only with explicit Treasury approval before March 10, and with the further condition that the Treasury could revoke permission if the secretary had announced a comprehensive national plan before then (Greene 2013; Kennedy 2014; US Government 1933).

Federal Reserve officials didn’t see a need for either clearinghouse certificates or a new form of scrip. Certificates had solved a problem in pre-Fed financial crises by making sure banks could obtain currency, but with the Fed in operation, any bank with assets could obtain currency. Federal Reserve Board Governor Eugene Meyer and New York Fed President George Harrison both regarded certificates “as an exercise in utter futility,” according to Meyer’s biographer (Pusey 1974, 233). And any national scrip, they believed, should be issued by the Fed (Pusey 1974).

On Wednesday, March 8, the Times reported that officials were leaning toward a Fed-issued currency, Federal Reserve bank notes, which could be based on any sound assets possessed by banks rather than gold, which backed the existing currency. Meanwhile, the Times also reported that the public debate over various currency plans “brought questions from perplexed citizens . . . The result is that an atmosphere of immense confusion and doubt hung over the entire administration, as viewed from the outside” (Krock 1933, 1). The president proposed to the Treasury secretary that all government securities, of any maturity, be immediately convertible into cash at par. Treasury and Fed officials were alarmed at the inflationary implications. Instead, they proposed authorization for the Fed to lend to individuals or corporations using government securities as collateral (see Key Design Decision No. 12, Regulatory Changes) (Fed 1934; Kennedy 2014).

On March 9, the Emergency Banking Act authorized both the proposal for Fed lending to nonfinancial entities on government collateral and the issuance of Federal Reserve bank notes as emergency currency. The New York Times compared the emergency currency to a currency briefly used in a 1914 banking crisis under the Aldrich-Vreeland Act, which was also backed by bank assets. Unlike the 1914 currency, however, the Federal Reserve bank notes represented liabilities of the Fed itself. The Fed preferred this option because it was not inflationary—no reserves were created. The availability of Federal Reserve bank notes meant that clearinghouse certificates would simply not be needed, the Fed later noted in its 1933 annual report (Fed 1934; Fulmer 2022a; Goldenweiser 1951).

The president told the Fed to issue currency liberally and that he would request that Congress cover any losses (see Key Design Decision No. 9, Verification of Solvency). In combination with President Roosevelt’s forceful communication, this created an implicit deposit guarantee for banks that reopened following the holiday. Despite this implicit guarantee, President Roosevelt expressed skepticism about formal deposit insurance until the end of May 1933, although many bankers and politicians promoted the idea from the early days of the crisis (Fed 1933a; Jaremski, Richardson, and Vossmeyer 2023; NYT 1933g; Silber 2009).

Ultimately, some cities reported limited issuance of clearinghouse certificates and scrip backed by bank deposits. Once banks began to reopen, the usage of Federal Reserve bank notes was also minimal, as depositors rushed to return cash and gold to their banks; the emergency currency may have provided a positive psychological impact. Usage grew slowly over the course of 1933 and peaked at $213 million in December 1933. The Fed’s new lending authorities were also little used (Fed 1934; CFC 1933c; CFC 1934).

Restructuring and Liquidating Banks

Section 304 of the Emergency Banking Act empowered the Reconstruction Finance Corporation to purchase directly or make loans secured by preferred stock in any national bank, state bank, or trust company that requested such support, if the Treasury secretary concurred and the president approved. The RFC was created by the Reconstruction Finance Corporation Act (RFC Act) in January 1932 to provide secured emergency lending to financial institutions that did not have access to the Federal Reserve’s discount window, given the impact of the Great Depression on credit availability (Leonard 2022; US Congress 1933a).

The RFC Act dictated that the RFC could not have more than three times its capital stock outstanding in any forms of obligations, and this was increased to 6.6 times in July 1932. As such, the RFC’s capital stock of $500 million enabled it to issue government-guaranteed debt for up to $3.3 billion in assistance. The RFC had $1.2 billion in notes outstanding at the end of the first financial quarter of 1933 (Lawson 2021; US Congress 1932; US Treasury 1959).

Uptake of RFC capital injections was initially slow, but by year-end 1933, RFC aid totaled one-third of the total capital in the US banking system. Ultimately, the RFC provided $1.2 billion in capital injections to 7,400 financial institutions (Lawson 2021). Full accounts of the work of the RFC during the Great Depression can be found in two Yale Program on Financial Stability case studies (Lawson 2021; Leonard 2022).

Following the general reopening of viable banks, the Comptroller oversaw restructuring efforts for national banks that did not qualify for immediate reopening but could be made viable with government support.^FState authorities appointed conservators for state banks (Kennedy 2014, 195). This restructuring required the doubling in size of the office of the Comptroller. An executive order issued on March 18, 1933, gave state authorities the power to appoint conservators for state-chartered banks (See Key Design Decision No. 9, Verification of Solvency) (Awalt 1969; Greene 2013; Kennedy 2014; US Government 1933).

Nonbank Institutions

At the state level, authorities invoked clauses directing savings banks to require 60- or 90-day notice for withdrawals. For example, heads of New York–based savings banks met and agreed to invoke a 60-day notice for withdrawals, and the New Haven Clearing Association voted to invoke a clause requiring 90 days’ notice for deposits greater than $100 (CFC 1933b).

Section 5(b) of the Trading with the Enemy Act of 1917 provided the authority for the national bank holiday. President Roosevelt used this authority to issue Proclamation 2039 declaring the national bank holiday beginning on March 6, 1933 (Roosevelt 1933a). Section 5(b) gave the president two major powers during times of war that related to the announcement of the bank holiday:

• (a) To prevent the offshoring of the nation’s gold, and
• (b) To uniformly prohibit or exercise greater control over transactions at all US banks (US Congress 1933b).

There had been some question among the attorney general and other officials in the Hoover administration about the strength of the authority under the Trading with the Enemy Act as a basis for a nationwide bank holiday. Hoover did not want to declare a holiday without assurances from Roosevelt that he would convene a special session of Congress to pass emergency legislation. However, once in charge, Roosevelt’s administration reconciled any issues and relied on the law (Awalt 1969).

The Emergency Banking Act of 1933 provided the authority for the bank reopening process. Passed on March 9, the EBA retroactively approved the bank holiday and granted new powers to the president and other members of the Executive Branch. The main impact of the Emergency Banking Act was to bring the banking system under the authority of the Executive Branch via the Treasury secretary (Greene 2013; US Congress 1933a). The specific powers delegated to each part of the Executive Branch are shown in Figure 2.

Source: Greene 2013.

Proclamation 2040 extended the bank holiday indefinitely until further executive action. Executive Order 6073 established the Federal Reserve System as agents capable of acting on behalf of the Treasury secretary and dictated that all Federal Reserve System member banks needed to apply for licenses from the Treasury Department in order to reopen. The Treasury secretary issued several regulations that dictated the terms of limited banking services during the holiday and guided the reopening process (Roosevelt 1933b; Roosevelt 1933d; US Government 1933).

The president worked with the Treasury secretary, Comptroller of the Currency, attorney general, and Federal Reserve officials to administer the bank holiday as well as to develop and implement the bank reopening plan. The departing Treasury secretary, Ogden Mills, from the Hoover administration, informed William Woodin, the Treasury secretary of the incoming Roosevelt administration, of prior discussions regarding a possible bank holiday the night before the presidential inauguration. Additionally, the Treasury undersecretary and acting Comptroller of the Currency carried over in their roles, as well as the staff of the Federal Reserve Board, providing important continuity in the midst of the crisis (Greene 2013; Kennedy 2014; Roosevelt 1934).

The president declared the national holiday and authorized the Treasury secretary to regulate what limited banking services were offered during the holiday period (See Key Design Decision No. 7, Details of Suspension, Gates, or Fees). The president’s Executive Order 6073 empowered the Treasury secretary to oversee the reopening process, with the support of the Federal Reserve. The Federal Reserve made emergency currency backed by commercial bank assets available to banks to support the reopening process. The Comptroller oversaw the restructuring of banks that could not open immediately but could be made viable with government support (Greene 2013; Kennedy 2014; Roosevelt 1933a; Roosevelt 1933d).^FFigure 2 in Key Design Decision No. 3, Legal Authority, provides an applicable breakdown of powers within the Executive Branch. 

In terms of reopening procedures, nationally chartered banks and state-chartered banks that were members of the Federal Reserve System were required to apply for licenses from the Treasury department (see Key Design Decision No. 9, Verification of Solvency). Executive Order 6073 established Federal Reserve branches as agents of the Treasury Department to receive and evaluate license applications (Roosevelt 1933d).

State-chartered banks that were not members of the Federal Reserve System received their reopening licenses from state-level authorities (See Key Design Decision No. 9, Verification of Solvency). State authorities operated independently but were instructed to allow these banks to open on the same schedule as the nationally chartered banks. An outcome of their independence was that some of these state-chartered nonmember banks opened with restrictions on deposit withdrawals or provision of loans. Approximately half of US state authorities permitted reopening under restriction and 1,685 state banks were permitted to reopen under restriction in March (Awalt 1969; Jaremski, Richardson, and Vossmeyer 2023; Roosevelt 1933c).

Roosevelt’s Proclamation 2039, based on the authority of the Trading with the Enemy Act of 1917, established federal control over all banks such that a consistent nationwide solution could be developed. The passage of the EBA by Congress confirmed that control and provided necessary expanded powers over the financial system to the president and the Executive Branch.^FMany members of Congress did not even have a chance to read the legislation before it came time to vote (Greene 2013).  All Federal Reserve member banks fell under the licensing jurisdiction of the Treasury secretary. The secretary then delegated authority for reopening nationally chartered banks to the Comptroller and authority over state-chartered member banks to their respective Federal Reserve Bank, under a common framework setting the terms for reopening. Nonmember state banks were under the purview of state supervisory agencies (Roosevelt 1934; Wicker 1996).

Having been empowered to issue currency against stable assets instead of gold, Federal Reserve Banks were required to report the amount of new currency as well as the amount and type of collateral held, pursuant to a regulation outlined by the Treasury secretary on March 12 (Fed 1933a; US Government 1933).

The governor of Michigan’s declaration of a statewide bank holiday on February 14, 1933, led to a nationwide contagion effect. Governors attempted to reassure the public but found limited success (Silber 2009).^FSee Appendix B for a graph documenting the change in deposits in the banking system over time.

President Roosevelt convened a conference of governors and other local officials from most of the states on March 6, 1933.^FThis meeting had been scheduled nearly a month before March 5 to cover a range of issues but became entirely about the bank holiday (NYT 1933f). At the meeting, Roosevelt and the state governors discussed modes of relief for constituents as measures were taken to relieve the banking situation. The president delivered a statement to the conference of state officials emphasizing the importance of a uniform, national solution through cooperation among the federal government and the states. Newspaper reporting published on March 6, 1933, suggested that state legislators and citizens in major banking states, such as Pennsylvania and New York, were still looking to local decisions at the start of the national bank holiday. Roosevelt addressed this issue at the end of his statement to the governors, stating: “One State is doing it one way and another State is doing it another way . . . But as yet we have no national policy for all of this. I believe we can have one, and ought to have one” (Roosevelt 1934, 12). Following the meeting, a committee of the governors issued a resolution expressing confidence in the president and committing to joint cooperation (NYT 1933e; NYT 1933f; NYT 1933i; Roosevelt 1934; Warn 1933).

Public statements supporting the bank holiday by members of the administration, business leaders, and former president Hoover himself all contributed to the restoration of confidence among the US public. On the day that the holiday was announced, Treasury Secretary Woodin stated, “We are at the bottom now. We are not going any lower,” while asserting that the United States would remain on the gold standard (Kennedy 2014, 160). However, the New York Times reported on March 8 that there was confusion among major New York bankers about the issuance of currency and the extent to which limited banking functions had been permitted. These confusions stemmed from a misunderstanding about the impact of a proclamation by the governor on regulations dictated by the Treasury secretary, which authorized limited use of currency and scrip. Governor Lehman issued a clarifying statement, saying that his proclamation did not restrict any functions that had been permitted by the Treasury secretary. On March 9, 1933, President Roosevelt sent a message to Congress requesting immediate legislative measures in order to support the reopening of sound banks (Fed 1933b; Kennedy 2014; Krock 1933).

Some critics contended that banks should have been reopened immediately following the passage of the Emergency Banking Act. Roosevelt addressed these concerns in a radio address on Sunday, March 12. Roosevelt’s March 12, 1933, radio address was heard by an estimated 60 million listeners, nearly half of the country’s population.^FThe total population of the United States in 1933 was 126 million people (per USAfacts.org). The address outlined the phased reopening plan and emphasized that all banks that opened were viable, even if they did not open on the first day of eligibility. In this first “fireside chat,” Roosevelt said, “I can assure you that it is safer to keep your money in a reopened bank than under the mattress” (Roosevelt 1933c). The public generally responded positively to the communications regarding the holiday. Upon reopening of the banks, the public immediately returned gold and currency to the banking system (see Key Design Decision No. 8, Treatment of Depositors or Investors) (Fed 1933a; Kennedy 2014; Roosevelt 1933c; Silber 2009).

Proclamation 2039 announced a four-day suspension of all transactions at all banking institutions, lasting from Monday, March 6, through Thursday, March 9, 1933. The president always intended to extend the holiday as necessary, considering an indefinite holiday to be unwise (Kennedy 2014; Roosevelt 1933a).“Banking institutions” included the following types of firms:

• (a) Banks;
• (b) Federal Reserve Banks;
• (c) National banking associations;
• (d) Trust companies
• (e) Savings banks;
• (f) Building and loan associations;
• (g) Credit unions; and
• (h) All other businesses receiving deposits, making loans, or discounting paper (Roosevelt 1933a).

The legal authority used for the proclamation stipulated that any violations of the banking holiday were punishable by a fine of up to $10,000 ($238,000 when adjusted for inflation^FInflation data found via usinflationcalculator.com.) or imprisonment for up to 10 years (Roosevelt 1933a).

For the duration of the holiday, however, the Treasury secretary was empowered to permit the performance of banking functions on an ad hoc basis with the approval of the president. The Treasury secretary also had the power to permit or require the issuance of clearinghouse certificates or other claims against assets of banks and the power to authorize the creation of special trust accounts in banking institutions, which could receive new deposits that were withdrawable on demand (Roosevelt 1933a).

On March 9, Congress passed the Emergency Banking Act, which granted the president and the Executive Branch full authority over all banking functions. On the same day, President Roosevelt issued Proclamation 2040, which extended the bank holiday pending further executive action. By March 15, 10 days after the announcement of the national holiday, banks representing 90% of the country’s banking resources had resumed operations (Greene 2013; Jabaily 2013; Roosevelt 1933b; US Congress 1933a).

The national bank holiday provided a uniform set of rules that was lacking across the individual state holidays by transferring power over bank reopening to the Executive Branch; the Treasury then delegated reopening responsibility back to state and federal authorities under a common framework. The problems with the various state holidays were that they not only lacked consistency at their inception, but their rules changed independently. Such waffling had spooked depositors in nearby states and influenced run dynamics (Wicker 1996).

However, the decision to revert to state bank authorities to decide whether to reopen state-chartered banks that were not members of the Federal Reserve System resulted in “wide differences in availability of banking facilities in the country” (Meltzer 2003, 423). Some states immediately reopened all state-chartered banks on March 13; others were more selective (see Key Design Decisions No. 8, Treatment of Depositors or Investors, and No. 9, Verification of Solvency).

Beginning on March 7, 1933, the Treasury secretary used his expanded authority to allow banks to provide limited, essential services. In Treasury Regulation No. 10, the secretary announced that any state or national bank would be permitted to exercise the usual banking functions “as shall be absolutely necessary to meet the needs of its community for food, medicine, other necessities of life, for the relief of distress, for the payment of usual salaries and wages, for necessary current expenditures for the purpose of maintaining employment, and for other similar essential purposes”^FThe full text of Treasury regulations and other statements during March 1933 are published in US Government (1933, 11–14), starting on page 11.(US Government 1933, 12). The Treasury secretary mandated that all precautions be taken to prevent hoarding and unnecessary withdrawals. Savings banks allowed a maximum $10 withdrawal to meet “urgent personal needs,” and commercial banks opened to make change (Kennedy 2014, 162).

A March 10 amendment to Treasury Regulation No. 10 permitted the Federal Reserve Banks to make advances to national banks and state-chartered banks that were members of the Federal Reserve System to “meet the needs of their respective communities” consistent with the regulation. It also authorized Reserve Banks to make advances to “individuals, partnerships, and corporations to meet their immediate pay roll requirements” March 12, 1933 (US Government 1933, 16). This measure excluded state-chartered banks that were not members of the Federal Reserve System; Congress later directed the Fed to expand lending to nonmember banks (see Key Design Decision No. 12, Regulatory Changes).

In the 5% of banks that were permanently closed and liquidated, authorities prioritized depositors while taking care to ensure that no creditor received preferential treatment (Kennedy 2014).

After the government received complaints, the RFC ensured that depositors received immediate access to their funds from banks in liquidation. The RFC expanded its lending operation, issuing loans to insolvent institutions against their good assets such that the banks could pay their depositors (Kennedy 2014).

President Roosevelt laid out the terms for the reopening process with Executive Order 6073. He stated that the precondition for a bank reopening was that its soundness be verified to the satisfaction of the government. In order to comply with this executive order, nationally chartered banks and state-charted banks that were members of the Federal Reserve System needed to apply for a license from the Treasury Department, while state banks were required to apply to their respective state superintendent of banks (NYT 1933k; Roosevelt 1933d).

Ogden Mills, Treasury secretary in the Hoover administration, had created a reopening plan that became the foundation of the plan that the Roosevelt administration implemented. The Mills plan called for dividing banks into three categories:

• (a) Assets equal to deposits and ready for unrestricted reopening,
• (b) Obviously insolvent and requiring supervised liquidation, and
• (c) Eligible for reopening after restructuring (Kennedy 2014).

The Mills plan was largely adopted by the Roosevelt administration and Mills’s former assistant, Undersecretary Arthur Ballantine, who transitioned to the new administration and was in charge of implementation. Authorities also determined to reopen banks that met the (a) criteria in three stages (Kennedy 2014; Roosevelt 1933c). President Roosevelt justified this decision in his radio address, saying, “Your Government does not intend that the history of the past few years shall be repeated. We do not want and will not have another epidemic of bank failures” (Roosevelt 1933c, 2).

Owing to time constraints, the information used for verification was in most cases the bank examiner’s previous reports, which were conducted twice a year for national banks^FState examiners faced even more dated information, with all bank reports being precrisis and some being nearly a full year old (Kennedy 2014). and which may have been outdated especially given the significant challenges the system faced. Other considerations such as geographical distribution and politics also played some role, and some weak banks were opened early (Jaremski, Richardson, and Vossmeyer 2023; Kennedy 2014).

There was a general tendency toward forbearance among the Federal Reserve authorities that the Treasury secretary and Comptroller sought to dispel. The minutes of the Federal Reserve board meeting held on March 11, 1933, reported that Federal Reserve officials had expressed concerns about the planned method of valuation. Valuing bank assets at fire sale liquidation prices would prevent immediate reopening of many banks that otherwise may have been eligible if their assets were valued on a fair going-concern basis. Having received a letter from the Treasury secretary emphasizing this point, President Roosevelt stated that valuation mistakes would be inevitable and that the Federal Reserve would likely face losses on its lending to banks. He continued that given the increased scope of the Federal Reserve System under the EBA, he would ask Congress to cover any losses Federal Reserve Banks suffered. He also expressed confidence that Congress would grant such a request (Awalt 1969; Fed 1933a).

Among the banks that required licenses from the Treasury secretary, state banks that were part of the Federal Reserve System applied to their district Federal Reserve branch and national banks applied to the Comptroller. The Treasury secretary adopted the phased reopening process, wherein banks in Federal Reserve Bank cities opened on Monday (March 13), banks in clearinghouse cities on Tuesday (March 14), and a general opening followed on Wednesday (March 15). The Treasury secretary worried that a staggered opening would cause more skepticism than a general opening.^FThe fireside chat on March 12 helped to calm these fears, as President Roosevelt emphasized banks that reopened would be viable, no matter the date of their reopening (see Key Design Decision No. 6, Communication and Disclosure) (Roosevelt 1933c). The Treasury secretary requested that the Comptroller’s chief national bank examiner in each district submit a list of national banks based on criteria that were dictated by Treasury officials over telephone. Comptroller officials reviewed the recommendations along the same criteria and reconciled any differences found. Federal Reserve officials conducted the same process, and if the three examining parties disagreed on a particular recommendation, the Treasury secretary then made a final decision (Fed 1933a; Kennedy 2014).

State banks that were not members of the Federal Reserve System fell outside the procedure for national banks, leading to confusion regarding who should assess their soundness. The EBA had amended the Federal Reserve Act of 1913 to make such banks eligible for liquidity assistance from the Federal Reserve—although only against government securities as collateral—but members of Congress and state governors were hesitant to vest further licensing power with the Treasury secretary. Authorities ultimately decided that state officials would be empowered to license state banks outside the Federal Reserve System, along the same guidelines as those outlined in Roosevelt’s Executive Order 6073 (Kennedy 2014; Roosevelt 1933d).^FAwalt says that many officials considered this to be a mistake, but that it was impossible for national authorities to handle the state banks given their limited information availability and time (Awalt 1969).Figure 3 provides a breakdown of the distribution of reopening authorities.

Source: Kennedy 2014.

On March 11, the Treasury secretary authorized financial institutions to transact with the Federal Reserve and stated that all Federal Reserve branches—as well as other federal financial agencies, including federal land banks, intermediate credit banks, Federal Home Loan Banks, regional agricultural credit corporations, and the RFC—would reopen on March 13, 1933 (Fed 1933a).^FThese institutions did not require a verification process.

On March 13, the Federal Reserve System and viable banks in the 12 Federal Reserve branch cities opened to the public. On March 14, viable banks in the 250 cities with recognized clearinghouses were permitted to open, and on March 15, all other viable banks that had been verified to be sound reopened (Greene 2013).

For banks that required liquidation, the EBA empowered the Comptroller of the Currency to appoint a conservator to oversee the bank’s liquidation proceedings. An executive order issued on March 18, 1933, granted state authorities the power to appoint conservators to banks under their supervision that had not reopened. Following the appointment of a conservator, all banks, state and national, required a license directly from the Treasury secretary in order to reopen (US Congress 1933a; US Government 1933).

The licensing process featured some instances of regulatory arbitrage. Specifically, several state banks in Texas withdrew from the Federal Reserve System to receive reopening licenses from the state bank superintendent. That said, 237 state banks entered into membership in the Federal Reserve System. The Federal Reserve’s 1933 annual report reported a net reduction in its membership of 293, driven largely by bank liquidations (Fed 1934; Kennedy 2014).

Research did not reveal any other conditions associated with the national holiday.

Following the passage of the EBA, President Roosevelt issued an executive order dictating the bank reopening procedure. The following day, the president released a statement to the press that outlined the reopening procedure in greater detail (Kennedy 2014; NYT 1933k; Roosevelt 1933d).

A March 10 amendment to Treasury Regulation No. 10 permitted the Federal Reserve Banks to make advances to member banks to “meet the needs of their respective communities”; it also authorized Reserve Banks to make advances to “individuals, partnerships, and corporations to meet their immediate pay roll requirements” (US Government 1933, 16). The March 8, 1933, edition of the New York Times reported the opening of major banks in New York for limited operations (See Key Design Decision No. 6, Communication and Disclosure). The government stated that no bank was permitted to open until its soundness had been verified to the government’s satisfaction (see Key Design Decision No. 9, Verification of Solvency). Before receiving this verification, banks opened only on a restricted basis in order to satisfy essential needs of the public, as defined and allowed by the Treasury secretary (Kennedy 2014; Krock 1933; NYT 1933k).

The Bureau of Engraving and Printing worked 24-hour shifts for several days to print new Federal Reserve bank notes, which were shipped to Federal Reserve branches in preparation for the phased reopening. That said, the extra currency proved to be more useful psychologically than economically. Usage turned out to be minimal after gold and reserves flowed back into the system upon reopening. Though authorities were left with more notes than they needed, the more inflationary monetary policy was favored by several congressmen, who encouraged the extension of the note program (CFC 1933c; CFC 1934; NYT 1933k).

Having completed their evaluations, government authorities had successfully grouped banks into three categories (see Key Design Decision No. 9, Verification of Solvency). Approximately 50% of the country’s banks were approved to fully reopen by March 15, 1933, enabling public access to 90% of the country’s banking resources. An additional 25% were approved to open partially, paying out a percentage of deposits, and 20% were barred from paying out deposits but would be preserved through restructuring.^FThe partially opened and restructured banks were both placed under conservators, meaning that 45% of the country’s banks entered conservatorship (Kennedy 2014, 187). The remaining 5% of banks were deemed insolvent and permanently closed. By the end of March, 5,387 of 6,694 Federal Reserve member banks and 7,654 of 11,435 state-chartered banks had fully reopened. In total, of the 17,000 commercial banks in existence before the holiday, 12,000 survived (Boston Fed 1996; Kennedy 2014; Todd 1992).

During the March 1933 crisis, the Fed expanded access to its lending facilities to state-chartered banks that were not members of the Federal Reserve System. The Fed had traditionally opposed lending to such banks because they had not put up the capital for Fed membership and were not subject to Fed oversight (Sastry 2018).

In the 1932 Emergency Relief and Construction Act, Congress had added Section 13(3) to the Federal Reserve Act to allow Federal Reserve Banks, with Federal Reserve Board approval, to lend at a penalty rate to “individuals, partnerships, and corporations” based on any collateral that the Reserve Bank concluded was “secured to [its] satisfaction” (Sastry 2018, 23). Such lending could occur only under “unusual and exigent circumstances.” However, despite the broad language of Section 13(3), the Fed had excluded state-chartered nonmember banks from its coverage.

During the 1933 bank holiday, Title IV of the Emergency Banking Act added Section 13(13) to the Federal Reserve Act. This section allowed a Federal Reserve Bank to lend to “individuals, partnerships, and corporations” based on collateral “secured by direct obligations of the United States,” without a determination of unusual or exigent circumstances and without approval of the Federal Reserve Board (US Congress 1933a, tit. 4). In contrast to its interpretation of Section 13(3), the Fed agreed to lend to state-chartered nonmember banks under the new Section 13(13) authority, since these advances were backed by government securities (Sastry 2018).

However, the Fed was under pressure in March 1933 from the Treasury and state bankers to broaden access to nonmember banks against a broader range of collateral. After some discussion among the Fed, Treasury, and others, Congress voted on March 24 to amend the EBA to allow state-chartered nonmember banks access to the Fed’s discount window on the same basis as member banks for a period of one year (Sastry 2018).

Title I of the EBA increased the power of the Executive Branch to affect monetary policy, independent of the Federal Reserve. In combination with Title IV, the Executive Branch used the power to briefly take the United States off the gold standard by authorizing the Federal Reserve to issue currency backed by bank assets. Despite this move, authorities publicly said that the US remained on the gold standard. The government partially restored the gold standard with the Gold Standard Act of 1934, which persisted until the US ended dollar convertibility to gold in 1971 (Greene 2013; Kennedy 2014; US Congress 1933a).

Congress passed the Glass-Steagall Banking Act of 1933 on June 16, 1933. This legislation comprehensively reformed the US banking system, creating more formal separation between commercial banking activities and speculative investment activities. The new legislation also created the Federal Open Market Committee of the Federal Reserve to set monetary policy and the Federal Deposit Insurance Corporation to insure bank deposits. The FDIC began providing coverage for up to $2,500 per depositor on January 1, 1934 (Boston Fed 1996).