Understanding FDR’s Bank Holiday Move in 1933

Franklin D Roosvelt was the US President during Great Depression.  Some econ research praises FDR for his role in Great Depression, the others point to some grave errors in his policies. The first says Obama should be as courageous as FDR and latter suggests Obama to avoid the same mistakes.

Anyways, on 5 March 1933 FDR  proclaimed Bank Holiday. William Silber of NY Fed provides an excellent account of the event in this research note.

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.

Read the whole thing for details. A nice lesson in economic history. It provides you a good snapshot of the policies made at the crisis time.

PS.

Though am sure economists would differ whether bank holiday worked or not. There must be a lot of literature on the same. But then that is economics for you and you need to take research findings with a pinch of salt.

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7 Responses to “Understanding FDR’s Bank Holiday Move in 1933”

  1. Understanding FDR’s Bank Holiday Move in 1933 | Depression Knowledge Info Blog Says:

    [...] View original post here:  Understanding FDR’s Bank Holiday Move in 1933 [...]

  2. Understanding FDR’s Bank Holiday Move in 1933 « acc3ss.info Says:

    [...] Go here to read the rest: Understanding FDR’s Bank Holiday Move in 1933 [...]

  3. kenya safari cost expert Says:

    the bank holiday was a great help to all.

  4. Bernanke’s 4 lessons from history of economic policy « Mostly Economics Says:

    [...] did things get better (though some of his policies failed).  One Roosvelt policy was bank holiday. Bernanke compares the bank holiday move to Fed’s [...]

  5. Mostly Economics: Bernanke’s 4 lessons from history of economic policy : Livemint Blogs Says:

    [...] did things get better (though some of his policies failed). One Roosevelt policy was bank holiday. Bernanke compares the bank holiday move to Fed’s [...]

  6. KILL THE BANKS!!! - Page 4 - Stormfront Says:

    [...] 100% in agreement. However, the Feds have a tried and true tactic to stop such runs: FDR's Bank Holiday roadblock, which closed banks and prevented withdrawal of cash by customers. The whole bankster [...]

  7. CBO: Stimulus hurts economy in the long run - Page 36 Says:

    [...] [...]

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