WHEN President-elect Franklin Roosevelt arrived in Washington for his inauguration he brought with him two rough-draft proclamations. The first requested that Congress meet for a special session later that week; the second declared a four-day bank holiday so that the administration could secure the financial system until it developed a recovery plan to submit to Congress when it convened.
By the time Roosevelt was to take the oath of office, the state of the banking industry had steadily declined to a point of crisis. Two of the most important elements required for a sound economy are low unemployment rates and stable financial institutions. The stock market crash of 1929 increased the pressure on a banking system that was not prepared to handle it. Small independent banks were two-thirds of all banks in the country and accounted for 40 percent of its capital. It was these banks that were, for the most part, responsible for sustaining small and medium size businesses. But the mass production economy of the 1920s was not accompanied by a mass consumption culture and could not maintain a level of profitability. As companies collapsed, the number of unemployed hovered around 10 million, with 25 million without a stable source of income. As the employment numbers dropped and businesses closed, individuals recognized that the money they had deposited would not be available for withdrawal if the need arose. These events generated large-scale bank runs and led to an alarming flow of gold out of the banking system, along with a wave of fear among the American people. Bank closings were sanctioned by the state and it was clear that if action was not imminent, the banking system would collapse.
By closing the banks, the administration was able to signal to the American people that it had secured their money-the bottom had been hit and there was no need to fear further losses. The next step, however, would be far more difficult. A solution needed to, first, help banks demonstrate that they were capable of covering their transactions, and second, inject more currency into the economy without devaluing the currency.
Secretary of the Treasury William Woodin and members of Roosevelt's Brain Trust teamed up with holdovers from the Hoover administration (including Treasury Secretary Ogden Mills) to develop a plan. There was a movement for the nationalization of the banks, but the administration decided to save the system rather than change it, in part for the impact a restored structure would have on the national psyche. While arguing for that it was the role of the government to provide financial security, Roosevelt wanted to stress that government intervention did not "indicate a change in values." (Degler,Out of Our Past, 421)
The legislation that emerged called for the review and reopening of banks once they could prove that they were on solid ground. Rather than simply issuing scrip as the banks had hoped (the assumption was that banks did not have enough currency on hand to meet national needs) the government would issue Federal Reserve notes based on the assets of each bank. The fact that the notes were based on actual assets made it "money that looked like money." Additionally, the bill gave the Secretary of the Treasury the power to "prevent gold hoarding and to take over gold bullion and currency in exchange for paper."(Schlesinger, 7)
When Congress convened its special session on March 9, it was handed the emergency banking legislation for immediate action, and act immediately it did. Just after four p.m., after reading aloud the only available copy of the bill and allowing for brief debate, the House of Representatives "passed unanimously and without roll call the bill which few of its members had ever seen."(Ibid) At around 7:30 p.m., the Senate passed the bill 73-7 and President Roosevelt signed it within the hour. The process, from introduction to signature, took less than eight hours.
The results were realized at once. While it was too late for the banks to open on Friday, Monday's reopening would meet with success. On Sunday, March 12, in his first fireside chat, Roosevelt took the opportunity to speak directly to the American people, assuring them that all was well and their savings secure.
There was a transformation in the Capital and the White House. "The combination of power and delight was irresistible to people used to neither in the White House; it gave Americans a new confidence in themselves." (Sclesinger, 21-22) Recognizing a pliant Congress and perceiving a legislative momentum, Roosevelt saw an opportunity to harness the national energy and with urgency and zeal, the "Hundred Days" had begun.