Commentary
On Sunday, March 5, 1933, just one day after his inauguration, newly elected U.S. President Franklin Delano Roosevelt declared a banking “holiday,” closing all U.S. banks for four days. By the time the first banks began to reopen, financial regulators had scoured the banking system to determine which banks would survive and which would not.
Economists Milton Freidman and Anna J. Schwartz note in their monetary history of the United States that of the 5,430 banks that were not licensed by the U.S. Treasury Department to reopen the following week, over 2,100 would never again open their doors, eventually being suspended, merged, or liquidated. In total, the Federal Deposit Insurance Corporation (FDIC) estimates that there were 9,000 bank closures between 1930 and 1933. These bank failures cost investors and depositors $2.5 billion (equivalent to $58.3 billion in 2023 values). By the time the crisis was over, total commercial bank deposits had fallen by 42 percent, and the total U.S. money stock had fallen by a third, exacerbating the credit crunch and extending the Great Depression by years….