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Bill of Rights in Action
Constitutional Rights Foundation Volume 27 No 4
SUMMER 2012
FDR AND THE
BANKS After the stock market crash in 1929, economic conditions in the U.S. worsened into a deep depression. Industrial production slowed steadily, stock prices continued to fall, and unemployment went from 4 percent in 1929 to 25 percent by 1933. Economists have explained a number of causes for what became known as the Great Depression. One is how the banking system operated.
Banking System The banking system consisted of privately owned banks chartered by
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THE U.S. BANKING SYSTEM HAD COLLAPSED WHEN FRANKLIN D. ROOSEVELT (FDR) WAS INAUGURATED PRESIDENT IN 1933. FDR AND CONGRESS MOVED QUICKLY TO RESTORE PUBLIC CONFIDENCE IN THE BANKS. THEN THEY ENACTED MAJOR BANKING REFORMS.
ANXIOUS DEPOSITORS MILLED outside a bank early in the Great Depression.
states or the federal government. Most banking regulation was done by the states, but the federal government also operated the Federal Reserve System, commonly called “the Fed.” All federally chartered banks had to be members of the Fed. The Fed was governed by 12 Federal Reserve Banks in different regions of the country and a Federal Reserve Board in Washington. Cre-
FACING CRISES This edition of Bill of Rights in Action examines crises — past and present. The first article explores the banking crisis, not the recent one, but the one in the 1930s. The second article examines the Munich agreement, made in the face of the threat of Nazi Germany. The last article looks at our current unemployment crisis and the prospect for future jobs in the U.S. U.S. History: FDR and the Banks World History: Munich and “Appeasement” Current Issue: Unemployment and the Future of Jobs in America Guest writer Lucy Eisenberg, Esq., contributed the article on Munich. Our longtime contributor Carlton Martz wrote the other two articles.
ated by Congress in 1913, the Fed’s role was to stabilize the banking system, which had been plagued by numerous bank panics in the 19th and early 20th century. Bank panics could occur when depositors believed a bank was in financial trouble. They might hear that the bank had made bad investments, or a rumor might circulate that bank employees had embezzled funds. In a panic, depositors rushed to the bank to demand money from their accounts. Banks had some money on hand, but most of their money was invested or lent to others. Thus even a sound bank might have trouble paying its depositors in a panic. A bank might try to borrow from another bank, but other banks might turn it down. Once a panic began in one bank, it could easily spread to others, as people grew unsure about the banking system. If a bank closed, this would be a disaster
U. S. HISTORY © 2012, Constitutional Rights Foundation, Los Angeles. All Constitutional Rights Foundation materials and publications, including Bill of Rights in Action, are protected by copyright. However, we hereby grant to all recipients a license to reproduce all material contained herein for distribution to students, other school site personnel, and district administrators. (ISSN: 1534-9799)