|This Week in History
March 7-13, 1933
First Fireside Chat
President Roosevelt Averts a Banking Collapse During His First Week in Office
Probably no U.S. President except Abraham Lincoln had ever entered office under such crisis conditions as did Franklin Delano Roosevelt on March 4, 1933. There were four months between Roosevelt's election and his inauguration, and during those months the Depression escalated toward intolerable conditions. The defeated Herbert Hoover, instead of adopting measures to save the American population, concentrated his efforts on strong-arming President-elect Roosevelt to support his high-tax policies, and keep America on the gold standard. A heavy run on gold in 1932 had caused serious deflation in America, and when Britain and other European nations went off the gold standard, America's exports went down by half.
Then came another attack on the American economy by desperate, largely European, speculators, which drained off millions in gold. The situation of American banks and their depositors was desperate. From 1930 until March 3, 1933, a total of 5,504 banks had shut their doors, representing deposits of over $3 billion. As the Inauguration approached, more and more Americans, desperate for money, and worried about the solvency of their banks, withdrew what money they had.
As President Roosevelt wrote: "This situation was indicative of the fear, bordering on panic, which had seized the people of the Nation as the depression deepened, as unemployment increased, and as the Government remained stagnant in the face of impending disaster. In the absence of any governmental action to assist in the general unemployment situation and in the industrial and agricultural crisis, people began to fear for their savings in banks and were withdrawing large amounts in the form of currency and gold, and putting the money in various places of hiding....
"In different States, the State Governments were trying to do something to help. Even as early as February 4, 1933, it was necessary for Louisiana to declare a one-day bank holiday. Michigan followed on February 14th with a four-day holiday, which was later extended. On February 25th, Maryland declared a holiday, which was followed by restrictions on bank-deposit withdrawals in Indiana, Arkansas and Ohio.... By Inauguration Day, practically every bank in the country had either been closed or placed under restrictions by State Proclamations....
"I had come to the conclusion ... that the "Trading with the Enemy Act" of October 6, 1917...was still in effect. This Act gave the President power to regulate or prohibit transactions in foreign exchange and in gold and silver, and also to prohibit the hoarding of gold, silver coin, bullion, and paper currency. I determined to use this power to close all the banks in order to prevent complete chaos on the Monday following Inauguration Day, which was a Saturday."
Roosevelt then issued a Presidential Proclamation on March 6, declaring a national bank holiday, to be continued through March 9, which was the day of the convening of the U.S. Congress in extraordinary session. Roosevelt had called for the session in a Proclamation issued the day after his inauguration. He stated that the purpose of closing all the banks was fourfold: "First, to prevent continued runs on banks which would enable one depositor to obtain an unfair advantage over another. Second, to permit the reopening of all sound banks in an orderly manner. Third, to keep closed the many banks which were insolvent and to permit their liquidation in a just and orderly fashion. Fourth, to permit a resumption of banking under circumstances which would instill confidence in the people as to the solvency of their banking system."
When Congress then passed Roosevelt's Emergency Banking Act on March 9, the bank holiday was extended in order to give the government time to reorganize the banking system. The Act provided for massive influxes of credit into the system by authorizing national banks to issue and sell their preferred stock to the Reconstruction Finance Corporation. This permitted them to obtain funds without creating claims superior to the claims of their depositors. The legislation also made it possible for any member bank to meet all demands for currency so long as it had sound assets, because it could borrow against these assets from the Federal Reserve banks.
While the reorganization was in progress, President Roosevelt issued an announcement that he would speak to the American people via radio on March 12. Roosevelt stated that "The Constitution has laid upon me the duty of conveying the condition of the country to the Congress assembled at Washington, I believe I have a like duty to convey to the people themselves a clear picture of the situation at Washington itself whenever there is danger of any confusion as to what the Government is undertaking. That there may be a clear understanding as to just what has taken place during the last two days since the passage of this Act it is my intention, over the national ratio networks, at ten o'clock Sunday evening, to explain clearly and in simple language to all of you just what has been achieved and the sound reasons which underlie this declaration to you."
This was the first of President Roosevelt's "Fireside Chats," but it was also the method that he had used as Governor of New York State. In those days, his office had sent press releases to the state's local papers, but most of the newspapers were Republican outlets, and would not print the releases. So, the state Democratic Committee bought radio time once a month so that Governor Roosevelt could talk to New York's citizens about his policies and programs.
President Roosevelt, writing in 1937, described his motivation for this particular radio address as follows: "There had always been so much mystery thrown around the banking business, there was so much fear in the minds of bank depositors during these days of the banking crisis, and so much had happened during this first week, that I decided to use the radio to explain to the average men and women of the Nation who had their money tied up in some bank, what we had done and what we intended to do in the banking situation. It was my endeavor to explain these things in non-technical language, so that the great mass of our citizens who had had little or no experience with the technicalities of banking would be relieved of their anxiety as to whether they would ever see their money again."
Then Roosevelt referred to the fact that his radio address was "the first so-called 'fireside chat,' which has been applied by the Press to the various radio reports I have made to the people of the Nation.... The name "fireside chat" seems to be used by the Press even when the radio talk in delivered on a very hot mid-summer evening."
In his "Fireside Chat" on the banking crisis, Roosevelt calmly went through the essential workings of a local bank, explaining that "when you deposit money in a bank the bank does not put the money into a safe deposit vault. It invests your money in many different forms of creditbonds, commercial paper, mortgages, and many other kinds of loans. In other words, the bank puts your money to work to keep the wheels of industry and of agriculture turning around. A comparatively small part of the money you put into the bank is kept in currencyan amount which in normal times is wholly sufficient to cover the cash needs of the average citizen. In other words, the total amount of all the currency in the country is only a small fraction of the total deposits in all of the banks."
Then Roosevelt explained that because of the massive runs on the banks, they could not convert their assets quickly into cash except at panic prices far below their real value. Therefore, the banks were being closed until Federal money could reach the solvent banks, and on the following Monday the banks in the 12 Federal Reserve Bank cities would be opened, followed on Tuesday, by sound banks in around 250 cities. On Wednesday, and succeeding days, banks in smaller places would resume business, subject to the Government's physical ability to complete its survey of the banks' soundness.
Roosevelt noted later that, "By this time, there had been such restoration of confidence, that as soon as the banks were reopened, a large volume of currency was re-deposited.... There was also a rapid return of gold and gold certificates to the Reserve banks and to the Treasury. By the middle of April, deposits in the reporting member banks had increased by $1 billion, and before the end of June, by more than $2 billion."