Economics and The Public Welfare
42: The Reopening of the Banks
Chapter 42
The Reopening of the Banks
Reopening Well Handled by Administration. On the whole, the reopening of the banks was well handled by the Administration. The proclamation closing all banks for a few days, which the President issued on the morning of Monday, March 6, two days after the inauguration, declared a four-day holiday from Monday, March 6, to Thursday, March 9, inclusive. It was designed to give time to study the situation. Authority for the issuance of the proclamation was claimed under a wartime statute of 1917. Unlike the proclamations of certain of the Governors, which had left the banks open but limited the withdrawal of deposits to 5%, this proclaimed a complete bank holiday for all banks in the country. People could neither put money into banks nor take money out of banks. It gave time for the people to cool off, and during the cooling-off period, which was extended by a proclamation of March 9 “until further proclamations,” the people did have time to worry a good deal about the inadequately protected cash which they had in their homes.
Meanwhile the President called a special session of Congress, which promptly assembled, and on the same day, March 9, the Congress in a few hours passed an Act “to provide relief in the existing national emergency in banking, and for other purposes.” This Act had been prepared by the President’s advisers and was put through with hardly any debate. The Act validated what the President had already done, and gave wide authority for the further executive acts to be taken. Congress abdicated control of the situation to the President.
On March 12, 1933, at 10:00 P.M., the President delivered over the radio an address to the people, calling upon them to bring their money back to the banks, and assuring them that the banks which reopened would be good. He announced the plan of reopening the banks, not all on the same day, but on successive days. On Monday, March 13, the banks in the twelve Federal Reserve cities would be reopened. On Tuesday the banks in other cities where there were recognized clearing houses would be opened. On Wednesday and succeeding days banks in smaller places all through the country were to be reopened. Unsound banks were not to be allowed to reopen. There was to be cooperation of the Comptroller of the Currency, Federal Reserve banks, and the State banking authorities in deciding which banks should reopen. The President’s statement did a great deal to reassure the country as to the banking situation. The programme was carried out. The banks reopened.
Hoarded Cash Pours in on Banks. Immediately upon the reopening of the banks an immense volume of hoarded currency poured in upon them. The panic was over. The Federal Reserve Bulletin of April, 1933 (page 209), states that between March 4 and April 5, $1,225,000,000 of money returned to the Reserve banks and the Federal Reserve ratio advanced from 45.1% to 59.7%. The Federal Reserve Bulletin of May, 1933 (page 265), states that between March 4 and May 10 the total volume of currency returned was $1,595,000,000. It adds that only about $250,000,000 of the currency paid out to the public between February 1 and March 4 was still outstanding.
Mortality Among Banks in 1933. The mortality in banks in the year 1933 is exhibited by the following figures:
| All Commercial Banks—Number, Loans, Investments, and Deposits (In millions of dollars) | |||||||
|---|---|---|---|---|---|---|---|
| Date | Number of banks | Loans and Investments | Deposits | ||||
| Total | Loans | Investments | Total | Interbank | Other | ||
| Dec. 29, 1932 | 17,802 | 35,083 | 20,081 | 15,002 | 35,957 | 4,134 | 31,823 |
| June 30, 1933 | 13,949 | 30,357 | 16,349 | 14,008 | 31,911 | 3,443 | 28,468 |
| Dec. 31, 1933 | 14,440 | 30,789 | 16,246 | 14.543 | 32,637 | 3,537 | 29,100 |
It will be observed that the percentage drop in the number of banks was much greater than the percentage drop in deposits. A great many small banks outside the Federal Reserve System ceased to exist. The number of banks was further reduced by consolidations, many of which represented the taking over of weak institutions by strong ones. The increase in the number of banks on December 31 as compared with June 30 does not represent the starting of new banks, but rather the belated reopening of banks regarding which there had been question.
The estimated losses borne by depositors from the bank failures in 1933 amounted to $540,000,000, out of a total $3,597,000,000 deposited in the banks which were suspended either permanently or for part of the year.1
- 1This point will be discussed at length in Chap. 34.
