Banking

   Historically, banking in the United States was a complex political and economic issue. Opposition to a strong centralized government led to the demise of the National Bank in 1836. Although national banking was restored with the banking acts of 1863 and 1864, the banking system was complicated and inclined to instability. A three-tier system of national banks chartered by the federal government, state banks chartered by individual states, and local banks, all of which remained independent and essentially local businesses, existed. Lack of regulation and the impact of local events, such as problems in agriculture, often resulted in bank collapses. Bank panics—the worst being in 1907—and the 19th-century crisis in farming led to demands for regulation that resulted in the creation of the Federal Reserve in 1913. While this brought some stability, it did not solve all the problems as only about one-third of all banks registered with the Federal Reserve. Between 1921 and 1928 5,000 banks were forced to close. With the collapse in investors’ confidence following the Wall Street Crash, a further 1,345 banks failed in 1930 alone. Banking failure contributed enormously to the coming of the Great Depression as credit shrank and business loans and mortgages on homes and farms were called in. While President Herbert Hoover attempted to tackle the problem with a number of measures, many banks remained closed on the eve of Franklin D. Roosevelt’s inauguration. It was only with the banking reforms of the New Deal, beginning with an Emergency Banking Act of 9 March 1933, closing all the nation’s banks temporarily in a “bank holiday,” and then with the Banking Acts of 1933 and 1935, that some semblance of order and stability returned. In the process, some 1,000 banks were liquidated.