Banking Reforms

• Commercial banking


  Banking services for the general public and businesses, including holding money on deposit or processing financial transactions
• Investment banking


  Investment banks loan large sums of money for creating businesses and factories and for construction projects
• Share speculation


  People bought shares hoping they would increase in value, so they could then sell them on at a profit. The system worked well as long as share prices consistently rose. When prices fell, as in October 1929, it led to share-selling panic
• The Great Depression had highlighted the fragility and weaknesses of America's banking system
• Problems highlighted by the Wall Street Crash and the subsequent Great Depression:
• Emergency Banking Act


  1. FDR ordered a national bank holiday from 6-9th March

  2. US Treasury investigated all banks on the verge of collapse, and only those approved could re-open on the 10th

  3. Money from the Reconstruction Finance Corporation were used to prevent banking collapse
• Emergency Banking Act


  Restored faith in the banking system
• The Emergency Banking Act provided major relief to the banking system
• Glass-Steagall Act


  1. Separated commercial from investment banking

  2. Created the Federal Deposit Insurance Corporation (FDIC) – guaranteed all bank deposits to the value of $5,000
• Glass-Steagall Act

  • Along with the Emergency Banking Act, the two acts restored confidence in the banking system
  • 1936 – first time in 60 years, no US bank closed for business
  • Stable banking system = economic recovery more likely
• The Glass-Steagall Act changed the way that banking was done, and created new rules that banks had to obey
• Federal Securities Act

  1. Regulated the whole system of buying/selling shares

  2. All new share purchases had to be registered with the Federal Trade Commission

  3. Led to the creation of Securities and Exchange Commission in 1934 (led by JFK's father) – regulated all share exchanges across the US
• The Federal Securities Act changed the way that banking was done, and created new rules that banks had to obey
• Gold Reserve Act


  1. Devalued the US dollar against the rate of gold

  2. Aim = exports cheaper and encourage trade
• The Gold Reserve Act aimed to encourage trade through gold regulation
• Silver Purchase Act


  1. Attempted to raise prices by increasing the amount of silver in US coinage

  2. Aim = increase the money supply in order to encourage more economic activity
• The Silver Purchase Act aimed to encourage trade through increasing the amount of silver in circulation
• FDR believed the causes of the Great Depression were domestic, not international - opposite to Hoover
• At the London Economic Conference of July 1933, other nations wanted to stabilise the value of currencies in order to encourage international trade
• FDR refused to co-operate as he wanted to work on his own
• By hindering international co-operation, FDR may have harmed the US economy as he prevented foreign economies from growing enough to investment in US goods