“Will you join me? Like Hell I will!”: The Emergence of the Emergency Banking Act

As president-elect Franklin D. Roosevelt rode into Union Station on March 2, 1933 to assume leadership of the country two days later, he must have felt the weight of the world on his shoulders.  For most preceding presidential inaugurations, Americans across the nation had rejoiced at the concept of installing a democratically elected president. However in this year, Americans were fearful that their entire life savings was suddenly gone. On March 1 and 2 alone, sixteen states closed all banking transaction. As businesses and ordinary citizens alike ran dry of loose change, commerce shut down. Banks that closed usually never reopened. President Herbert Hoover felt there was little he could do, or had the power to do. Not so cried the ambitious president-elect. Roosevelt had a plan – to declare a national bank holiday. Ironically, Hoover’s administration had actually conceived of a plan to close banks, reopen them, and purchase preferred stock with the power to do so originating from an old World War I act – the same actions the Roosevelt administration would claim as their own just weeks later.

The remarkable story of the banking crisis, initiated by Hoover but executed by Roosevelt, is a fascinating account of how grave the situation had been and how imperative it was that immediate action be taken.

History judges Hoover as a man who did little to avert or alleviate any suffering during the Great Depression; however, it was not apathy or spite that alludes to Hoover’s legacy. He was a conservative man fearing expansion of government. When the RFC was first developed to save failing banks by providing them with loans, Hoover was hesitant to agree.

He had consistently vetoed bills in order to hold on to small government values. In 1931, he vetoed a bill that would allow veterans to borrow up to half of their bonus checks scheduled to be distributed in 1945. That same year he vetoed another bill that would allow federal investment into electrical power production in the Tennessee Valley.

His famous reputation as the Great Humanitarian was well-earned in previous years, and there is no reason to believe that he had abandoned his sincere moral commitment to help. Nevertheless, his ideology was very important to him and something he refused to back down on during the deepest days of the Great Depression.

After the stock market crash of 1929, Americans felt more secure if their money was in their own possession rather than a bank. They swarmed to banks all across the country to withdraw their savings. Banks, of course, could not keep up with such challenging demands, as they did not have enough money on hand to give to their patrons. One by one, banks across the country decided to close their doors. In 1930, 1,352 banks closed. The crisis escalated and 2,294 banks closed the following year.

To many bankers, the crisis must have been similar to George Bailey’s experience in It’s a Wonderful Life. There must have been sheer panic among bankers. In addition to the outrageous withdrawal demands, banks had given loans to people who could no longer pay their mortgage. As banks foreclosed on homes and farms, they were left with property that they could not possibly sell for the same value they had originally loaned out. Hoover, presumably out of frustration with the escalation of bank closures, asked member of the Federal Reserve Board Walter Wyatt to draft a bill allowing the RFC to purchase preferred stock. Characteristically, Hoover never acted on this bill.

Hoover would never take the bold, expanding presidential initiatives his successor would. However, it did not imply that he was insensible to the worsening situation. He did have a plan, though subtle, to alleviate America’s financial state. Hoover was passionate about keeping America on the gold standard. At the Lincoln Day Dinner on February 13, he advocated for the gold standard for two main reasons. Nearly all nations had built their financial foundations on gold (both domestic currency and credit systems). It was such a deeply rooted, well understood notion that he felt it would lead to disaster if the United States were to leave it. Furthermore, it was the most accepted currency. The few pioneering nations that had abandoned gold inevitably came to rely on it in trading with others.

Instability was a great fear of Hoover’s and one which he thought he could alleviate. He considered gold a powerful weapon acting to prevent currency fluctuations. The president repeatedly asked Roosevelt to speak out and make clear to Americans that he had no intention of taking the country off of the gold standard. Roosevelt remained characteristically silent.

Meanwhile, Hoover met with the Democratic leaders in the Senate and asked them if he could use the old World War I act to initiate immediate banking reform. The senators said that the power existed but that Congress would only allow it if Roosevelt consented, which was something they told the president he would not do. He felt that he needed Roosevelt’s consent to close the banks.

Though he could have made an attempt himself, it is unlikely that the Democratically controlled Congress would have approved. The economic clout looked gloomy already for Hoover, so the events later that month gave him no sense of optimism.

For Detroit’s banks, the weight of bank runs proved to be too heavy that winter. Much to Hoover’s irritation, Henry Ford refused to assist in a Reconstruction Finance Corporation (RFC) loan to save the banks. That February, Michigan declared a bank holiday, and six other states soon followed suit. Banking for business can be likened to water for humans – one can go a few days without it, but he soon must replenish himself or expire. It was devastating for many business owners. President of Goodyear Tire and Rubber Co. Paul Litchfield and newspaper tycoon William Randolph Hearst paid a visit to Congress days later asking for immediate government action: suggesting a sales tax and regulating and distributing farm crops to aid those hardest struck by the circumstances.

On February 17, Hoover wrote a hand-written letter to Roosevelt, or as the letter mistakenly read “Rosevelt,” trying to convince the president-elect to issue a statement to ease the minds of many Americans. “… it would steady the country greatly if there could be prompt assurance that there will be no tampering or inflation of the currency; that the budget will be unquestionably balanced, even if further taxation is necessary; that the Government credit will be maintained by refusal to exhaust it in the issue of securities…,” pleaded a desperate Hoover.

For whatever reason, FDR ignored this letter until Hoover once again called upon him in another letter requesting a meeting between the two men.

On March 3, 1933, the president-elect and his wife, both of whom had been staying at the Mayflower hotel until the inauguration, paid a visit to the Hoover’s at the White House. After the niceties of the inauguration had been discussed among the two families, the gentlemen were left in a room alone. Roosevelt and Hoover, probably both housing feelings of aggravation with one another, engaged in a heated debate about banking. Hoover pleaded with Franklin, “Will you join in a proclamation closing all of the banks?” FDR replied sternly, “Like hell I will! If you haven’t the guts to do it yourself, I’ll wait until I’m president to do it.”

At that, the Roosevelt’s left to go back to the Mayflower.

Later that evening, after the two men had calmed down, Roosevelt called the White House to urge Hoover to temporarily hold a moratorium on banking. The response FDR received was less than satisfactory. The President claimed that he would only do so with a joint consent. Roosevelt refused. Just before midnight on the eve of the inauguration, Hoover called the President-elect asking for another declaration, which Roosevelt again refused. Just before he went to bed,  an unremitting Hoover made one more phone call to the Mayflower Hotel informing Roosevelt that his Treasury officials were still working on the crisis, and that they were carefully watching the situations in New York and Illinois. New York, the state which housed the hub of United States financial institutions was in a dire emergency. The governor of New York and Roosevelt’s successor, Herbert Lehman, had cancelled his trip to Washington for the inauguration to remain in the state to help with the crisis. Meanwhile after a very long day filled with arduous effort, Hoover retired for his last night’s rest as president.

Secretary of the Treasury Ogden Mills had also been working all day monitoring the banking crisis. Mills finally left the White House later that evening to meet with Federal Reserve Board members over at the Treasury Building. Passerby’s observed, “lights [were] gleaming from the windows but what went on inside remained a mystery.”

Doubtless, the treasury men working hard had exhausted every other possibility than a bank moratorium. Earlier that day, Eugene Meyer, Federal Reserve Chairman, had urged Hoover to close the banks to no avail. After long discussions at the Treasury building, a decision was made that a Federal Reserve secretary was to awaken Hoover to sign an already drafted executive order, which only required his signature to close the banks. After the President was abruptly awakened, an enraged Hoover sent the secretary away. Early into the morning hours of March 4, Governor Lehman closed the banks in New York. Illinois also followed suit and declared a banking holiday at 3:22 am, March 4.

Franklin Roosevelt was sworn in as the thirty-second president just after one in the afternoon. In one of the most famous, inspiring inaugural speeches ever delivered, Roosevelt assured Americans fear was something they could control, that there was a new leader who was willing to take action, and that he would combat the war against depression with strong leadership. Later that evening the President and his wife entertained guests at the White House still celebrating the inauguration. Sunday, March 5, FDR attended church and went for a drive around the city. He must have been contemplating which steps he would take next. He promised bold, immediate action, but how far should he go? By what means would he assume such power? Certainly he knew that he would have to close the nation’s banks before Monday’s business brought down more banks. After he closed the banks, what would he do next? How could he ensure that the same scenario would not happen again? Would he need the permission of Congress? These are all questions which must have run rampant through Franklin’s mind that day.

At 10 am on Sunday, Secretary of the Treasury Woodin, Brain Trusters Raymond Moley and Adolph Berle, and Hoover Cabinet leftovers Arthur Ballentine and Ogden Mills met to devise a plan to reopen banks before the President had officially closed them. After a full day of debating with no definitive answer in sight, Wooden called for a subcommittee to also work towards a plan to reopen banks. Later in the evening, FDR called an official moratorium on all banking business for the next four days. While he did not specify his plans for gold in the declaration, Roosevelt placed a temporary hold on all gold exports. His declaration read that there was a $10,000 fine or a maximum of ten years imprisonment for anyone found to be hording gold. He stated the need to “provide a substitute circulating medium” for those banks deemed sound enough to reopen.

To legitimize his strong declaration, he called Congress to meet in a special session at noon Thursday, March 9.

The subcommittee called by Woodin to write the Banking Act was as unsuccessful as the meeting between the group of men on March 5. What actually became the Emergency Banking Act, the first of many bills to become part of Roosevelt’s New Deal, was actually thought of by Hoover’s administration. Mills had conceived a plan to reopen banks in a staggered formation. All closed banks would be classified into one of three categories – banks which were considered sound enough to reopen immediately, those which were impaired but were able to be restructured and eventually reopened, and those which were incapable of ever again opening their doors. While this plan seemed to solve how banks would slowly reopen to give air to a much suffocating population of business owners and ordinary citizens, the banks would still need additional capital to guarantee that they could meet their withdrawal demands. Promissory notes were one option; however, that might lead to a greater hording of currency. As Woodin was playing the guitar Monday evening, he had an epiphany – why issue script and scare people even more? As he met with Moley for breakfast Tuesday morning, Woodin explained, “We can issue currency against the sound assets of the banks. The Reserve Act lets us print all we’ll need. And it won’t frighten people. It won’t look like stage money. It’ll be money that looks like money.” With that, Moley and Woodin went to the White House to meet with the President. After twenty minutes, Roosevelt agreed that it was a sound plan and told them to draft legislation for Congress to approve. Wyatt and Woodin worked on drafting the bill.

When Congress convened, a short message from the President was read seeking approval of his decision to close the banks and for the Federal Reserve Board to provide additional currency to reopened banks so that they may be able to meet the demands of their customers. The banking bill included amendments to Subdivision B of Section 5 of the World War I Act originally passed in October, 1917. It gave the President the power to imprison or fine any “individual, partnership, association, or corporation” who engaged in the “export, hoarding, melting, or earmarking of gold.” Certainly this bill was originally designed to expire upon the conclusion of World War I.

Roosevelt also invoked the Federal Reserve Act to provide additional money to reopened banks. There was not enough currency in circulation, but Roosevelt was wise enough to know that simply printing money would lead to uncontrollable inflation. He included a provision that would allow the Federal Reserve to print additional currency backed by the Federal Reserve Bank. By simply issuing bank notes, people were likely to hoard money like they hoarded gold. As part of his message, he asked for the authority to reorganize banks and to appoint a Comptroller to purchase preferred stocks.

Upon the first meeting of the seventy-third Congress, both the House of Representatives and the Senate took up Roosevelt’s bill to be debated and voted upon. Chairman of the House Banking and Currency Committee Henry Steagall was given a copy of the bill (only three or four copies existed) and introduced it to the House. He exclaimed, “Here’s the bill. Let’s pass it.” With that, the Emergency Banking Act (H.R. 1491) was passed without congressmen viewing the legislation and without debate or delay. The Senate, however, took a little longer. A verbal fight between Senators Carter Glass and Huey Long broke out when the Senate began to debate the Act. Nonetheless, it passed 73-7 and became law later that evening.

In an unprecedented period of time, a law granting the President unparalleled power to take hold of a paralyzed nation to effect change was passed. This would mark the beginning of a series of legislative bills, some successful and others not, passed in a short period of time which eventually became known as the “Hundred Days.”

To assure that there was not widespread panic as banks reopened, Roosevelt felt it necessary to convey a message of reassurance to Americans. Not only would he explain how banks were assessed and reopened, he also wanted a return of the hundreds of millions of dollars of gold which many Americans were “hoarding”. Like many of his speeches and later fireside chats, Roosevelt would listen to advisors and others around him for ideas. Ultimately the speech was his. He became his own artist, carefully deciding the date and time of when it should be given. Sunday March 12 at 10 p.m. was the time chosen, as this would not be too late for those on the east coast and not too early for those on the west.

As millions of Americans listened with eagerness, the President of the United States began. “My friends, I want to talk for a few minutes with the people of the United States about banking…,” declared an optimistic Roosevelt. 

It is important to note that FDR choose to start his address with an informal, “my friends” rather than a formal greeting. This introduction was used for the succeeding chats as well. Most importantly, he immediately identified the listeners as friends. Throughout the speech, he called the listeners friends three additional times. He stated things in very plain English and described the elemental function of a bank. He did so in such a way that it was easily comprehensible. The average unemployed or underemployed American heard, “… when you deposit money in a bank the bank does not put the money in a safe deposit vault…. [rather] it invests your money in different forms of credit.”

The steps the administration took during the week following the bank holiday were clearly stated, and future plans were laid out. He assured Americans that certain banks would begin to reopen the next day and even more during the next week. He also labeled those hording gold as working against government in calling the act an “exceedingly unfashionable pastime.” He assured listeners “… that it is safer to keep your money in a reopened bank than it is to keep it under the mattress.” In so doing, he used a simple metaphor which many Americans understood. At his conclusion, he ended the speech with an optimistic sense of confidence stating that the banking problem was a grave problem for both the public and him, and that united, the country may alleviate the crisis.

By the end of March, $1.2 billion was returned to the banks (half in gold); by mid-April $31 billion in deposits in nation-wide banks, and at the end of 1933 $33 billion was returned.

With much of the currency returned, the banks became even more stable, thereby ending the banking crisis.

The transition of power between Franklin Roosevelt and Herbert Hoover provides fascinating insight into one of the nation’s largest calamities – the banking crisis. Without power eventually exerted to close the nation’s banks, the Great Depression could have spiraled into a larger, more serious catastrophe. History will most likely forever fault the inactions of Hoover during the interregnum, and note the wise decisions executed by the Roosevelt administration in a quick manner. No administration could have acted so hastily and ended up with such a successful arrangement unless it had earlier anticipated the crisis and had help from the previous administration. Regardless of Hoover’s decision to refrain from exerting presidential power when it was clearly needed, some credit must be given to his administration for the Emergency Banking Act. The story of the interregnum and the battle between the outgoing and incoming presidents is an extraordinary measure of how grave the banking crisis was. It also has been a great example for succeeding presidents not to create such a difficult transfer of power among opposing ideologies.

Bibliography

Alter, Jonathan . The Defining Moment: FDR;s Hundred Days and the Triumph of Hope. New York: Simon and Schuster, 2006.

Badger, Anthony.  FDR: The First Hundred Days. New York: Hill and Wang, 2008.

Buhite, Russell D. and David W. Levy, eds. FDR’s Fireside Chats.  Norman: University of Oklahoma Press, 1992.

Kiewe, Amos. FDR’s First Fireside Chat: Public Confidence and the Banking Crisis. College Station: Texas A&M University Press, 2007.

Hoover, Herbert. The Memories of Herbert Hoover: The Great Depression 1929-1941. London: Hollis and Carter, 1952.

Moley, Raymond.  After Seven Years. New York: Harper & Brothers, 1939.

Smith, Richard N. An Uncommon Man: The Triumph of Herbert Hoover. New York: Simon and Schuster, 1984.

Sullivan, Lawrence. “Congress Call Issued After Sunday Meeting of Cabinet to Devise Program; Financiers Here to Confer,”  Washington Post, March 6, 1933. 

  • “Hoover Urges World Return to Gold Basis,” Washington Post, February 14, 1933.
  • “Plans Drawn By Roosevelt in Bank Crisis,” Washington Post, March 4, 1933.
  • “Rubber Executive Asks Dictatorship,” Washington Post, February 22, 1933.
  • “Text of Bank Measure Passed By Congress,” Washington Post, March 10, 1933.

About brentgstewart

I am a 20th century historian with a focus on political history. My primary work has focussed on the personal life of Franklin D. Roosevelt.
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