How did Roosevelt attempt to correct the  U.S. banking system in the early 1930s?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Franklin Roosevelt and Congress did two main things to try to fix the problems of the US banking system.  First, they created the FDIC.  Second, they passed the Glass-Steagal Act.

The major problem with the banking system in the '30s was that banks had used depositor money to invest in the stock market and to loan to people who wanted to play the stock market.  When the stock market crashed, the banks lost their money and so did their depositors.  The actions mentioned above fixed these problems.

The Glass-Steagal Act separated commercial and investment banking.  This meant that deposits could not simply be taken and invested.  Instead, investment banks would have to find funds some other way.  The creation of the FDIC ensured that depositors would get their money back if their bank went bankrupt.  These two measures together made it so that banks would be less likely to fail through making bad investments and made it so that depositors would not lose their money in the event that a bank did fail.

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