Bank Supervision, the Great Depression, and the Creation of the New Deal

31 Pages Posted: 9 Mar 2020 Last revised: 12 Aug 2020

See all articles by Peter Conti-Brown

Peter Conti-Brown

University of Pennsylvania - The Wharton School; Brookings Institution

Sean Vanatta

University of Glasgow - School of Social and Political Sciences

Date Written: February 14, 2020

Abstract

The U.S. banking holiday of March 1933 was a pivotal event in 20th century political and economic history. After closing the nation’s banks for nine days, the newly inaugurated Franklin D. Roosevelt administration restarted the banking system as the first step toward national recovery from the global Great Depression. In the conventional narrative, the holiday succeeded because Roosevelt used his political talents to restore public confidence in the nation’s banks. Such accounts, however, say virtually nothing about what happened during the holiday itself. In this article, we reinterpret the banking crises of the 1930s and the 1933 holiday through the lens of bank supervision, the continuous oversight of commercial banks by government officials. Through the 1930s banking crises, federal supervisors identified troubled banks but could not act to close them. Roosevelt empowered supervisors to act decisively during the holiday. By closing some banks, supervisors made credible Roosevelt’s claims that banks which reopened were sound. Thus, the union of FDR’s political skills with the technical judgement of bank supervisors was the key to the solving the banking crisis. Neither could stand alone, and both together were the vital precondition for further economic reforms—including devaluing the dollar—and with them, Roosevelt’s New Deal.

Keywords: Bank Supervision, Great Depression, Banking Holiday, Comptroller of the Currency, Legitimacy

JEL Classification: N22, N42, G21, K23

Suggested Citation

Conti-Brown, Peter and Vanatta, Sean, Bank Supervision, the Great Depression, and the Creation of the New Deal (February 14, 2020). Available at SSRN: https://ssrn.com/abstract=3538411 or http://dx.doi.org/10.2139/ssrn.3538411

Peter Conti-Brown

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Sean Vanatta (Contact Author)

University of Glasgow - School of Social and Political Sciences ( email )

United Kingdom

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