What was Roosevelt's initial approach to the banking crisis and later efforts regarding the monetary supply, banks, securities, and stock market?

2 Answers | Add Yours

dbello's profile pic

dbello | High School Teacher | (Level 1) Educator

Posted on

F.D.R. declared a 'bank holiday', he closed the banks in order to stop the spiraling effect of the insolvent banks and to reel in the emotional roller coaster of the American public (hence using the term bank holiday)

Utilizing the theory of John Maynard Keynes, 'priming the pump' F.D.R. interjected federal money into the economy by issuing a check to American families. The premise behind this immediate relief was based in the idea that the government had to 'kick start' the economy from the bottom up.

Several reform programs were legislated in order to safeguard the economy against future economic strife. The Security and Exchange Commission 1934 was designed to regulate and prevent fraud in the Stock Market, for example the S.E.C. regulated buying and selling practices such as buying on margin (credit) Another was the Federal Deposit Insurance Corporation which guaranteed bank deposits up to $100,000. The F.D.I.C. was essential to establish faith in the banking system. For without deposits banks cannot loan money, if banks do not loan money new money cannot be created and flow into the economy which ultimately strengthen the nation economically.

 

brettd's profile pic

brettd | High School Teacher | (Level 2) Educator Emeritus

Posted on

President Roosevelt had his work cut out for him when he took office in 1933, as the economy was collapsing, and the banking industry was bleeding to death.  So his approach was twofold--stop the bleeding and then restore people's confidence in the system over the long term.  His "Bank Holiday" closed all banks in the US until such time as they could prove their solvency to federal regulators, who then would proclaim the bank safe for business.  Then later, with the FDIC, he created an insurance system the banks could buy into that guaranteed investor's accounts were covered even if the bank closed.  The Glass-Steagall Act did this and put new regulations on the kinds of banking that could be done.

Another problem during the Depression was deflation, as supplies rose and prices for many goods and services went down.  This put downward pressure on tax revenue, sales, and wages.  So FDR increased the monetary supply to try and create some inflation.

The Securities and Exchange Commission was created as part of FDR's reform program to regulate stock market trades, put new restrictions on who could buy stock on margin, and keep an eye out for insider trading or other risky behavior that might crash the stock market.

We’ve answered 318,982 questions. We can answer yours, too.

Ask a question