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The Emergency Banking Relief Act: A Critical Response to the Great Depression

In 1933, President Franklin D. Roosevelt signed the Emergency Banking Relief Act, a landmark legislation that aimed to stabilize the US banking system and provide relief during the Great Depression. This act ensured that the president possessed wartime powers during times of peace, creating a legal structure and financial authority necessary to close, reopen, or liquidate all financial institutions in the United States.

Key Provisions of the Act

The Emergency Banking Relief Act contained five titles:

Title I: Presidential Powers

  • Authorized the President to declare an emergency, control national finances, and dictate which banks would reopen, merge, or remain closed.
  • Provided extraordinary powers to the President during times of crisis.

Title II: Comptroller’s Authority

  • Authorized the Comptroller of the Currency to seize and operate any bank in the United States.
  • Appointed conservators for banks deemed unfit to resume operations but with potential for recovery.
  • Conservators “froze” existing deposits, allowed depositors access to funds according to a schedule determined by recoveries on assets, and segregated new deposits into separate accounts.

Title III: Preferred Stock

  • Authorized national banks to issue preferred stock that paid dividends not exceeding six percent per year.
  • Did not subject holders to double liability.
  • The Reconstruction Finance Corporation could purchase preferred stock in large quantities.

Title IV: Federal Reserve Powers

  • Expanded powers of the Federal Reserve by allowing Fed banks to use as collateral for Federal Reserve notes:
    • Direct obligations of the United States government
    • Notes, drafts, bills of exchange, and bankers’ acceptances acquired during the banking emergency
  • Issued notes summing to 100% of the value of their US government obligations and 90% of the estimated value of other collateral.
  • Expanded lending powers.

Title V: Additional Provisions

  • Allowed Federal Reserve banks to convert debt instruments of the United States federal government into currency at par value.
  • Converted any circulating liability of a commercial bank (e.g., check, draft, or banker’s acceptance) into cash at 90% of its apparent value.
  • Authorized unsecured loans to member banks at a rate at least one percent above the discount rate.
  • Loaned funds to individuals and corporations for 90 days if secured by US government securities.

Amendments and Impact

The Emergency Banking Relief Act underwent significant amendments, including:

  • March 24, 1933: An amendment expanded powers, enabling Federal Reserve banks to loan funds directly to non-member banks and trust companies.
  • June 16, 1933: The Banking Act of 1933 became law.

Legacy of the Act

The Emergency Banking Relief Act provided critical support for banks during the Great Depression, allowing them to reopen, reorganize, or merge under new management. It also expanded powers of the Federal Reserve and provided deposit insurance, helping to restore confidence in the financial system.