Franklin D. Roosevelt
Fireside Chat 1 (March 12, 1933)
On the Bank Crisis
I want to talk for a few minutes with the people of the
First of all let me state the simple fact that when you deposit money in a
bank the bank does not put the money into a safe deposit vault. It invests your
money in many different forms of credit-bonds, commercial paper, mortgages and
many other kinds of loans. In other words, the bank puts your money to work to
keep the wheels of industry and of agriculture turning around. A comparatively small part of the money you put into the bank
is kept in currency -- an amount which in normal times is wholly sufficient to
cover the cash needs of the average citizen. In other words the total amount of
all the currency in the country is only a small fraction of the total deposits
in all of the banks.
What, then, happened during the last few days of February and the first few
days of March? Because of undermined confidence on the part of the public,
there was a general rush by a large portion of our population to turn bank
deposits into currency or gold. -- A rush so great that the soundest banks
could not get enough currency to meet the demand. The reason for this was that
on the spur of the moment it was, of course, impossible to sell perfectly sound
assets of a bank and convert them into cash except at panic prices far below
their real value.
By the afternoon of March 3 scarcely a bank in the country was open to do
business. Proclamations temporarily closing them in whole or
in part had been issued by the Governors in almost all the states.
It was then that I issued the proclamation providing for the nation-wide
bank holiday, and this was the first step in the Government's reconstruction of
our financial and economic fabric.
The second step was the legislation promptly and patriotically passed by the
Congress confirming my proclamation and broadening my powers so that it became
possible in view of the requirement of time to entend
(sic) the holiday and lift the ban of that holiday gradually. This law also
gave authority to develop a program of rehabilitation of our banking
facilities. I want to tell our citizens in every part of the Nation that the
national Congress -- Republicans and Democrats alike -- showed by this action a
devotion to public welfare and a realization of the emergency and the necessity
for speed that it is difficult to match in our history.
The third stage has been the series of regulations permitting the banks to
continue their functions to take care of the distribution of food and household
necessities and the payment of payrolls.
This bank holiday while resulting in many cases in great
inconvenience is affording us the opportunity to supply the currency necessary
to meet the situation. No sound bank is a dollar worse off than it was
when it closed its doors last Monday. Neither is any bank which may turn out
not to be in a position for immediate opening. The new law allows the twelve
Federal Reserve banks to issue additional currency on good assets and thus the
banks that reopen will be able to meet every legitimate call. The new currency
is being sent out by the Bureau of Engraving and Printing in large volume to
every part of the country. It is sound currency because it is backed by actual,
good assets.
A question you will ask is this - why are all the banks not to be reopened
at the same time? The answer is simple. Your Government does not intend that
the history of the past few years shall be repeated. WE do not want and will
not have another epidemic of bank failures.
As a result we start tomorrow, Monday, with the opening of banks in the
twelve Federal Reserve Bank cities -- those banks which on first examination by
the Treasury have already been found to be all right. This will be followed on
Tuesday by the resumption of all their functions by banks already found to be
sound in cities where there are recognized clearinghouses. That means about 250
cities of the
On Wednesday and succeeding days banks in smaller places all through the
country will resume business, subject, of course, to the Government's physical
ability to complete its survey. It is necessary that the reopening of banks be
extended over a period in order to permit the banks to make applications for
necessary loans, to obtain currency needed to meet their requirements and to
enable the Government to make common sense checkups.
Let me make it clear to you that if your bank does not open the first day
you are by no means justified in believing that it will not open. A bank that
opens on one of the subsequent days is in exactly the same status as the bank
that opens tomorrow.
I know that many people are worrying about State banks not members of the
Federal Reserve System. These banks can and will receive assistance from member
banks and from the Reconstruction Finance Corporation. These state banks are
following the same course as the national banks except that they get their
licenses to resume business from the state authorities, and these authorities
have been asked by the Secretary of the Treasury to permit their good banks to
open up on the same schedule as the national banks. I am confident that the
state banking departments will be as careful as the National Government in the
policy relating to the opening of banks and will follow the same broad policy.
It is possible that when the banks resume a very few people who have not
recovered from their fear may again begin withdrawals. Let me make it clear
that the banks will take care of all needs -- and it is my belief that hoarding
during the past week has become an exceedingly unfashionable pastime. It needs
no prophet to tell you that when the people find that they can get their money
-- that they can get it when they want it for all legitimate purposes -- the
phantom of fear will soon be laid. People will again be glad to have their money
where it will be safely taken care of and where they can use it conveniently at
any time. I can assure you that it is safer to keep your money in a reopened
bank than under the mattress.
The success of our whole great national program depends, of course, upon the
cooperation of the public -- on its intelligent support and use of a reliable
system.
Remember that the essential accomplishment of the new legislation is that it
makes it possible for banks more readily to convert their assets into cash than
was the case before. More liberal provision has been made for banks to borrow
on these assets at the Reserve Banks and more liberal provision has also been
made for issuing currency on the security of those good assets. This currency
is not fiat currency. It is issued only on adequate security -- and every good
bank has an abundance of such security.
One more point before I close. There will be, of course, some banks unable
to reopen without being reorganized. The new law allows the Government to
assist in making these reorganizations quickly and effectively and even allows
the Government to subscribe to at least a part of new capital which may be
required.
I hope you can see from this elemental recital of what your government is
doing that there is nothing complex, or radical in the process.
We had a bad banking situation. Some of our bankers had shown themselves
either incompetent or dishonest in their handling of the people's funds. They had
used the money entrusted to them in speculations and unwise loans. This was of
course not true in the vast majority of our banks but it was true in enough of
them to shock the people for a time into a sense of insecurity and to put them
into a frame of mind where they did not differentiate, but seemed to assume
that the acts of a comparative few had tainted them all. It was the
Government's job to straighten out this situation and do it as quickly as
possible -- and the job is being performed.
I do not promise you that every bank will be reopened or that individual
losses will not be suffered, but there will be no losses that possibly could be
avoided; and there would have been more and greater losses had we continued to
drift. I can even promise you salvation for some at least of the sorely pressed
banks. We shall be engaged not merely in reopening sound banks but in the
creation of sound banks through reorganization. It has been wonderful to me to
catch the note of confidence from all over the country. I can never be
sufficiently grateful to the people for the loyal support they have given me in
their acceptance of the judgment that has dictated our course, even though all
of our processes may not have seemed clear to them.
After all there is an element in the readjustment of our financial system
more important than currency, more important than gold, and that is the
confidence of the people. Confidence and courage are the essentials of success
in carrying out our plan. You people must have faith; you must not be stampeded
by rumors or guesses. Let us unite in banishing fear. We have provided the
machinery to restore our financial system; it is up to you to support and make
it work.
It is your problem no less than it is mine. Together we cannot fail.