Banks In The 1920's

Banks in the 1920s were built around a system of credit and mutual dependency with banks largely relying on the stability of others incase of emergency. Banks had to be registered with the National Reserve to operate with roughly 30,000 National Reserve banks housing different portions of the country’s financial reserves. Each bank in turn also had its own reserves to account for the various loans and issued currency. With this system banks were intended to cooperate and move money as needed to other banks while lessening the blow should a few banks begin to fail. In reality banks were reluctant in sharing their reserves with other banks, normally keeping what they had to themselves incase they were to experience any troubles themselves. There
This inconsistency of policy would make country-wide recovery difficult to achieve in an extreme crisis but contain small crises. All of these issues were brought to light during the national Banking Panics of the 1930s. In 1930 Caldwell and Company was the largest financial holding company in the south. Like most other banks of the time Caldwell invested large sums into the stock market as securities. When the stock prices fell The bank lost a great amount of money in its supposedly secure investments. The executives of the bank chose to pull money from smaller companies and branches that they owned to attempt to reconcile losses. Beginning early November Caldwell’s subsidiaries and affiliates failed one by one beginning with the Bank of Tennessee and causing panic in their communities. A majority of Caldwell banks were shut down and liquidated within a few weeks. Afterwards the Bank of United States, a main bank in New York, was forced to close down. Both of these events spread across the country in media and fed the panic throughout the country. Each district put in place differing policies and were met with varied levels of
Banks were giving out less money and stockpiling deposits for fear of another surprise bank run. This hoarding of money caused deflation not only in the US but also in foreign countries that had invested in American banks. In 1933 Franklin Delano Roosevelt was sworn into office during this increasing crisis. His cabinet had to set about restoring the economy when multiple states were in a state of moratorium, or forced closure of banks. All gold exports were halted and all banks were closed soon after he took office on March 3rd. On March 9th Congress passed the Emergency Banking Act of 1933 dictating a number of actions the President and the Federal Reserve Banks could take in a state of emergency or war. This act gave the President the ability to regulate credit and sale of gold both foreign and domestic. It also gave Federal Banks the ability to give Federal Reserve Notes which would hold value until March 3, 1934 or when the President declares them unnecessary. This was followed by the Glass-Steagall Act and the Gold Reserve Act which prevented speculative spending of bank securities and made all monetary gold a possession of the US