Banking in Early 1933

8 Items to Learn About Banks and Bailouts #4

Years after he left office, Herbert Hoover would say that the baking system was "the weakest link in our whole economic system." As President during the early years of the Great Depression, he never sounded like he was anything less than confident in the banking system. He would tout "the strong position of the banks." Even when he soured on banking late in his term, he would still not propose major reforms. He was negligent and the people paid the price.

In the first three years of the Great Depression, five thousand banks went out of business. People, tired of watching, turned on the banking system. The level of mistrust in the nation's banks had never been higher. The secrets uncovered by the Pecora Commission  deepened that mistrust. There would continue to be runs on the banks.

Hoover was desperate to find a way to stop the runs and restore confidence in the system. He convinced himself that if he could convince FDR to disavow his proposed New Deal and commit to a "sound fiscal policy", confidence would be restored. Roosevelt refused to make any public proclamations before he assumed office on March 4th. Hoover was furious with FDR, but FDR would not budge. (When you think of the capacity of Republicans to delude themselves, remember that Hoover, soundly thrashed at the polls in November 1932, believed that FDR needed to disavow his own reforms and support the Republican agenda. Hey, Hoover thought he had beat the depression in 1932 too.)

Hoover could not be convinced that the government needed to play a larger role in solving the crisis. He believed to the end that was all just a matter of confidence. He was a tragic figure.

On the eve of Roosevelt's inauguration, Hoover made one last attempt to get FDR to make a public proclamation in support of Hoover's policies. Predictably, he refused again. Various officials in the Hoover administration would then press Hoover to call for a national bank holiday, but he wouldn't hear of it. He did not believe it was necessary. 

Late into the evening of March 3rd (or rather, early in the morning of March 4th), the governor of New York was convinced to shut down all banks on Saturday by Hoover treasury officials. Illinois would respond in kind. As Arthur M. Schlesinger Jr said, "the banks of the nation seemed in rigor mortis". The banking situation was a stand still.

None the less, time had run out on the Hoover administration. It was Roosevelt's problem now.

Source - The Crisis of the Old Order by Arthur M. Schlessinger Jr.