Banks could not keep up with the demands for withdrawal of funds. People withdrew their cash to live on, instead of saving it. As the Depression wore on, more businesses failed, workers lost their jobs, and bank loans were not repaid. Nationwide branch banking was prohibited. Unit banks attempted to carry out an array of services operating out of only one location. Although some large city banks did fail, 90 percent of the failed banks were small unit banks with few assets. The belief that banking failed due to stock speculation proved to be a misconception.īy 2000, with hindsight as an ally, the structure of the American banking system was recognized as the main weakness causing so many banks to close their doors. The prevalent thought of the day fostered by congressional hearings was that the failures were in large part due to unscrupulous bankers and banks investing in securities (stocks and bonds). Nearly 40 percent of America's banks had failed or had to merge. The bouts of bank failures reached a climactic point in 1933. Each crisis weakened public confidence and prompted cries for reform. Over the last two hundred years the United States banking system experienced a succession of crises. As dawn broke on March 4, 1933, the nation's banking system had no pulse. In the early morning hours of the day, as Franklin Delano Roosevelt was inaugurated the thirty-second president of the United States, the banks in Illinois and New York were closed. "Holidays" spread to Indiana, Maryland, Arkansas, and Ohio. The closure was so unnerving, depositors throughout the country attempted to withdraw cash from their banks.
On Valentine's Day, 1933, the governor of Michigan proclaimed an eight-day "bank holiday" throughout the state, freezing 900,000 depositors' funds in the state's bank vaults. The American banking industry was in serious trouble and everyone knew it.
Bank officials called moratoria " bank holidays," but there was no holiday spirit evident in the eyes of citizens standing before a bank entrance on whose door was a note announcing "closed by the Board of Directors until further notice." Panic, anger, and disbelief were the emotions experienced at the loss of one's entire savings. Bank "moratoria," or closures, rolled across the country beginning in 1930. America was in the depths of the Great Depression in early 1933.
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