AMARILLO, Texas (KAMR/KCIT) – “Banks are significantly stronger due to lessons from the Great Depression and subsequent recessions. Plus, the FDIC Insurance Coverage helps boost confidence in banks, especially in tough times. The banking system is stronger now than it has ever been.” That’s what the President of Amarillo National Bank, William Ware told us.
This was after the United States Banking System was in disarray in the 1930s.
In 1931, Great Britain left the gold standard, meaning it withdrew its promise to provide a specific amount of gold in exchange for its banknotes. This caused considered that the US would do the same, causing people to convert their dollar assets to gold. This caused a large reduction in the US gold supply and at the same time, depositors became concerned about the safety of banks and withdrew from their accounts, creating a drain on the banking system.
The uncertainty over the economic policies of the incoming President Franklin D. Roosevelt also led to banking uncertainty. In late 1932, bank runs (which is when customers or other financial institutions withdraw deposits at the same time because they fear the institution will fail) could threaten other banks in another state, so states began declaring state banking holidays, according to Federal Reserve History.
All and all, the U.S. banking system was in desperate need of help.
According to Federal Reserve History, immediately after his inauguration in March 1933, President Roosevelt called a special session of Congress the day after and declared a four-day banking holiday that shut down the banking system, including the Federal Reserve, and this action was then followed by a few days later by the passage of the Emergency Banking Act.
“Before the banking system crashed right with the Great Depression if a bank went under and you didn’t get any of your money out before it closed its doors, you were just out of luck, so however much money had in the bank was just poof, it was gone,” said Dr. Tim Bowman, head of the Department of History at WTAMU.
According to the Federal Reserve History, The Emergency Banking Act also broadened the powers of the president during a banking crisis, and was divided into five sections:
- Title I expanded presidential authority during a banking crisis, including retroactive approval of the banking holiday and regulation of all banking functions, including “any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold or silver coin.”
- Title II gave the comptroller of the currency the power to restrict the operations of a bank with impaired assets and to appoint a conservator, who “shall take possession of the books, records, and assets of every description of such bank, and take such action as may be necessary to conserve the assets of such bank pending further disposition of its business.”
- Title III allowed the secretary of the treasury to determine whether a bank needed additional funds to operate and “with the approval of the President request the Reconstruction Finance Corporation to subscribe to the preferred stock in such association, State bank or trust company, or to make loans secured by such stock as collateral.”
- Title IV gave the Federal Reserve the flexibility to issue emergency currency—Federal Reserve Bank Notes—backed by any assets of a commercial bank.
- Title V made the act effective.
It also set standards for the reopening of banks.
According to Paul H. Carlson, in his book “Amarillo: The Story of a Western Town”, Amarillo’s four banks along with the rest of Texas’ banks were closed on March 2, 1933 by Governor Miriam “Ma” Ferguson. Carlson adds to deal with the crisis, banking and business leaders met, led by Dean Kirk, president of the Retail Merchants Association and an official of the White and Kirk clothing firm, they sought ways to deal with customer accounts, as they could make no bank deposits, protect their cash incomes.
Their plan called for greater use of credit buying and for regular customers to write checks for the amount of purchase. Ross Rogers, Amarillo’s Mayor, at the time, announced that the city would cooperate with the banks and businesses as best it could.
Beginning on March 2, 1933, the four Amarillo banks would remain closed for two weeks. During the period, federal examiners inspected the banks, declared them financially sound and solvent, and set in motion procedures to allow them to reopen. On March 15, Amarillo National Bank, First National Bank, American State Bank, and Amarillo Bank and Trust reopened.
According to Carlson, the banks were expecting large crowds on that Wednesday morning of opening and they didn’t disappoint. The people of Amarillo deposited nearly $1,435,000 into the banks.
Months after the passing of the Emergency Banking Act, came the Banking Act of 1933 or the Glass-Steagall Act.
This act also separated commercial banking from investment banking and created the Federal Deposit Insurance Corporation.
“So now when they offered insurance for the banks, through the FDIC insurance program, they wanted to regulate those banks and make sure that FDIC insurance was being handled properly, so after 1933, you started seeing a separation of those banks to where commercial banks and investment banks were separated and not allowed to do business together,” said Matt Ramsey, Amarillo National Bank Senior Vice President and Senior Investment Officer.
Ramsey said since the 1930s, regulations have grown for banking.
“There have been many, many regulations piled on banks over the years. Banks are heavily regulated now and have been for years, so all of those regulations were thought by the regulators and by lawmakers to make banks safer and deposits safer for individuals,” said Ramsey.
According to Federal Reserve History, in 1999, Congress repealed large parts of the Glass-Steagall Act with the establishment of the Gramm-Leach-Bliley Act or the Financial Services Modernization Act. This eliminated the Glass-Steagall Act’s restrictions against affiliations between commercial and investment banks.
On March 12, 1933, President Roosevelt gave his first Fireside Chat on the radio with the subject being on the banking crisis.
Carlson adds Amarillo business leaders also participated in another New Deal effort, the National Recovery Administration or NRA, which to some is one of the most dramatic and controversial, of the recovery programs. The NRA established codes of fair practices. This means that businesses and industrial operations that participated in the NRA accepted various regulations and agreed to a uniform system of wages and hours, meaning presumably higher wages and shorter hours.
In Amarillo, Rolla E. Townsend of the Amarillo Credit Association headed up NRA activities. He designated some 61 different business groups for the city, including, for example, cafes and restaurants, clothing stores, automobile dealerships, construction companies, grocers, gas stations, banks, and hotels. He asked each group to organize, and collect its own codes and regulations from the state and federal agencies and to to conduct its businesses with NRA guidelines. He further pressed each group to select representatives to serve on a central enforcement committee headed by Mayor Ross Rogers. Carlson said that cooperation was quick and mainly positive, although some businesses could not or would not cooperate, but most local companies joined the NRA program. Upon joining, they could place a large placard with the NRA’s Blue Eagle emblem and its ‘We Do Our Part’ slogan on it in their windows and in their advertisements.
Carlson added The NRA codes and regulations helped create almost 500 new jobs. The Phillips, Gulf, and Magnolia oil companies, for example, by August of 1933 had established respectively 12,14, and 16 new positions. Tire companies in town, led by Goodyear and Goodrich dealerships, added new men, as did the Sears and Roebuck and Montgomery Ward stores. In some operations, such as the local Coca-Cola bottling plant, people who held part-time jobs began working full-time. He said as employment increased, wages went up. Prices rose as well, but with improved purchasing power, the economy began to improve.
In May 1935, the Supreme Court declared the NRA and its codes unconstitutional, as complaints against NRA code restrictions and NRA enforcement procedures mounted.
According to Carlson, in Amarillo, although unemployment remained relatively high, economic and business activity was picking up, banks were sound, most businesses were stable and wheat, cotton, and cattle prices were increasing. Moreover, the Great Depression in Amarillo had never been as bad as it had been in larger, eastern, and northern cities.