Emergency+Banking+Act

FDR signing Emergency Banking Act
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//Emergency Banking Act//

The Emergency Banking Act was passed on March 9, 1933 during the Great Depression. This act stated that all insolvent banks would close down. Then it would reorganize and reopen those banks. The Federal Deposit Insurance Corporation was also created in order to provide insurance for any deposit.

Fireside Chat - "My fellow Americans, I know you are all shocked to see such a depression in our nation. We have all lost our money in the stock market crash and bank faliures due to the actions of an irresponsible few. We may be thinking that these immoral and untrustworthy banks are not fit to handle our money. My friends, I propose a solution known as The Emergency Banking Act. This act will close all banks and ensure they may only reopen once they have met certain standards. It will ensure banks can no longer greedily gamble with clients' money . This act will also create a government organization known as the Federal Deposit Insurance Corporation. This program will ensure that our money is protected and will serve to provide us peace of mind. Hopefully by implementing these measures we can once again trust these banks with our hard earned money. Thank you and good night."

Immediate Impact The Emergency Banking Act immediately reformed banks. It separated investment and commercial banking activities. This was due to the fact that commercial banks were being too speculative during the pre-Depression era. They were investing clients' funds into the stock market and taking greater and greater risks with money that did not belong to them in hopes of gaining bigger rewards. They also enganged in improper banking practices such as giving unsound loans to companies that they invested in so that their investment would be profitable. The EBA created a barrier that ensured this type of gambling would no longer happen with clients' funds.

Lasting Impact The Act created the Federal Deposit Insurance Corporation or FDIC. This government corporation provides deposit insurance to depositors of member banks. It was meant to guarantee the saftey of the depositor's money and help restore the peoples' trust in banks after the various bank faliures of the Great Depression. Currently the FDIC will provide insurance for up to $250,000 per account, however in 2010 the maximum amount insured by the FDIC will be reduced to $100,000 per account.**