Banking in the 1930’s and the “FDIC”

1. Banking in the 1930’s and the “FDIC” By: Matt Stewart

2. The Stock Market Crash of 1929 • October 29, 1929 was a fateful day on Wall Street. The Stock Market plummeted and stood as the first sign for the Great Depression. • The worst crash in United States Stock Market history • Also known as “Black Tuesday” • 16 million shares were traded, and the Dow lost an additional 30 points • The market lost $14 billion in just that one day, and lost $30 billion in that week

3. Why did the market crash? • Economists later credit the market crashing to Congress trying to pass the Smoot-Hawley Tariff, which raised United States Tariffs on over 20,000 imported goods to record levels. • The overall level of tariffs under the Tariff were the second highest in United States history. • This angers foreign governments and prevents free trade

4. Banking during the Great Depression • During the 1920s, there was one bank for every thousand people. • As the Depression grew bigger, banks started failing at a rapid rate. • During the 20s, with no Depression, an average of 70 banks failed a year. But with the Great Depression, 744 banks failed in just 10 months. • In all, 9000 banks failed in the 1930s • 4000 of them came in the year 1933, the worst year of the Depression. Losing $140 billion dollars.

5. Why did the banks crash? • Banks were used for loans, mainly for businesses and sometimes people. • When the market crashed, businesses failed which means that they can’t pay off their loans to the bank. Also, people lose their jobs and then can’t pay off their loan to the bank. • Without receiving payment for their loans, the bank doesn’t make any money, and therefore can’t pay back people who deposited.

6. Reasons why the bank crashed • Upon hearing that the banks are about to go bankrupt, people rush to the bank demanding for their money. Since the bank did not get paid back for their loans, they have no way to give money to the people who deposited it in the first place because it was all given out to loans.

7. The FDIC • The FDIC is a United States government corporation created by the Glass-Steagall Act of 1933. • It provides deposit insurance, which guarantees the safety of deposits in member banks • The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages banks in receiverships (failed banks). • There is a Board of Directors • The Board is composed of five members, three appointed by the President of the United States

8. The FDIC in the 1930s • On June 16, 1933, President Franklin Roosevelt signed the Banking Act of 1933 which consisted of: • Establish the FDIC as a temporary government corporation • Gave the FDIC authority to provide deposit insurance to banks • Gave the FDIC the authority to regulate and supervise state nonmember banks • Funded the FDIC with initial loans of $289 million through the U.S. Treasury and the Federal Reserve • Extended federal oversight to all commercial banks for the first time • Separated commercial and investment banking (Glass–SteagallAct • Prohibited banks from paying interest on checking accounts • Allowed national banks to branch statewide, if allowed by state law.

9. Afterword • The United States eventually got out of the Great Depression(of course) and started to flourish again like it’s supposed to.