Emergency Banking Act

The Emergency Banking Act (the official title of which was the Emergency Banking Relief Act) was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933. The act allowed a plan that would close down insolvent banks and reorganize and reopen those banks strong enough to survive. In summary, the provisions of the act were as follows:

Title I, Section 1. To affirm any orders or regulations the President or Secretary of the Treasury had given since March 4, 1933.

Title I, Section 2. To give the President the ability to declare a national emergency and have absolute control over the national finances and foreign exchange of the United States in the event of such an emergency.

Title I, Section 3. To authorize the Secretary of the Treasury to order any individual or organization in the United States to deliver any gold that they possess or have custody of to the Treasury in return for "any other form of coin or currency coined or issued under the laws of the United States".

Title I, Section 4. To make it illegal for a bank to do business during a national emergency (per section 2) without the approval of the President.

Title II. To enable the Comptroller of the Currency (a post in the US Treasury) to take complete control of and operate any bank in the United States or its territories and to establish the terms and conditions under which bank is administered.

Title III. To allow banks to disown their debts with the permission of the Comptroller of the Currency and a majority vote of their stockholders.

Title IV, Section 401. To allow Federal Reserve banks to convert any US debt obligation (such as a bond) into cash at par value and any check, draft, banker acceptance, etc, into cash at 90% of its apparent value.

Title IV, Section 402. To allow the Federal Reserve banks to make unsecured loans to any member bank at an interest rate of 1% over the prevailing discount rate.

Title IV, Section 403. To allow Federal Reserve banks to make loans to anyone for up to 90 days if the loan is secured by a general obligation of the United States (such as a Treasury bond, for example).

Title V, Section 501. Appropriation of $2,000,000 to the President for carrying out this legislation.

Title V, Section 502. (a severability clause)

The Emergency Banking Act was introduced on March 9, 1933, to a joint session of Congress and was passed the same evening amid an atmosphere of chaos and uncertainty as over 100 new Democratic members of Congress swept into power determined to take radical steps to address banking failures and other economic malaise. The sense of urgency was such that the act was passed with only a single copy available on the floor and most legislators voted on it without reading it.

According to William L. Silber "The Emergency Banking Act of 1933, passed by Congress on March 9, 1933, four days after FDR declared a nationwide bank holiday, combined with the Federal Reserve’s commitment to supply unlimited amounts of currency to reopened banks, created de facto 100 percent deposit insurance. Much to everyone’s relief, when the institutions reopened for business on March 13, 1933 depositors stood in line to return their hoarded cash to neighborhood banks. Within two weeks, Americans had redeposited more than half of the currency that they had squirreled away before the bank suspension.The stock market registered its approval as well. On March 15, 1933, the first day of trading after the extended closure, the New York Stock Exchange recorded the largest one-day percentage price increase ever. With the benefit of hindsight, the nationwide Bank Holiday and the Emergency Banking Act of March, 1933, ended the bank runs that had plagued the Great Depression."

This act was a temporary response to a major problem. The 1933 Banking Act passed later that year presented elements of longer-term response, including formation of the Federal Deposit Insurance Corporation (FDIC).