Financial History 144 Winter 2023 - Page 22

amounts of cash from their banks . The amount of currency held by the public rose from an average of $ 5.36 billion in the six weeks ending on February 8 to $ 7.25 billion in the week ending on March 8 . Federal Reserve officials in New York also expressed their alarm over many foreigners ’ requests to withdraw funds from their US bank accounts — and to demand those funds be paid in gold , not currency .
On Friday , March 3 , President Hoover ’ s last day in office , banks in most states were either closed or restricting depositors ’ access to their funds . Many of his advisors were recommending the outgoing President declare a nationwide banking holiday . But since election day 1932 , the defeated incumbent had refused to take any action to address the spreading problems in the banking system without first receiving the public endorsement of President-Elect Franklin D . Roosevelt . But FDR continued to assert that he had no authority to give that endorsement . He also had no desire to help his vanquished opponent . That night , in an unusual example of bipartisanship , President Hoover ’ s economic team worked closely with the incoming President ’ s key economic advisors to persuade the governors of New York and Illinois to declare banking holidays before dawn on Saturday . Doing so prevented particularly damaging runs of both local depositors and out-of-town correspondent banks and corporations on those important money-center institutions .
On Saturday , March 4 , FDR was sworn in as the 32nd President of the United States . Despite his public reticence on the subject , the new President proved quite willing to declare a national emergency and a banking holiday . He did so at 1:00 am on Monday , March 6 , using Proclamation 2039 to order the suspension of all banking transactions in the country for the next four days . He cited the Trading with the Enemy Act of 1917 as his authority for taking that action . The President cited “ unwarranted withdrawals of gold and currency ” and “ extensive speculative activity abroad ” as specific reasons for declaring a banking holiday . He ended his proclamation by also indicating that it was “ in the best interests of the all bank depositors ” to create “ a period of respite … permitting the application of appropriate measures to protect the interests of our people .” That same day , the new President called Congress into a Special Session to begin on Thursday , March 9 .
Notice of the “ President ’ s Proclamation ” regarding the federal bank holiday , issued on March 9 , 1933 by the Federal Reserve Bank of St . Louis to all of the District 8 banks .
The banking holiday certainly disrupted the flow of business across the economy . But it also seemed to comfort those who had been fearing more bank closures and a general financial meltdown . At a press conference on March 8 , the President assured reporters his administration was well on its way to developing policies to address the financial problems while also stopping some of the “ nameless , unreasoning , unjustified terror ” he had cited in his inaugural address .
Most merchants adapted to the holiday by extending credit and accepting personal checks they could not immediately present for cash . Many accepted unusual items such as scrip and streetcar tokens .
The prohibition on conducting banking was not total . Under the terms of a notable provision in the March 6 proclamation , the Secretary of the Treasury allowed access to safety deposit boxes , permitted savings banks to honor withdrawals of up to $ 10 to meet urgent personal needs and allowed national and state banks to conduct normal activities they considered “ absolutely essential to meet the needs of their community .”
In limiting the banking holiday to just four days , FDR knew he was putting pressure on his advisors to quickly develop a credible plan for both re-opening the banks and stopping the flood of withdrawals . In yet another unusual show of
Federal Reserve Bank of St . Louis
20 FINANCIAL HISTORY | Winter 2023 | www . MoAF . org