Albert D. Biderman - The ...

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The Fireside Chats of Franklin Delano Roosevelt
Radio addresses to the American people broadcast between 1933 and 1944.
Franklin Delano Roosevelt
BiblioLife
ISBN: 0554316188
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March 12, 1933.
I want to talk for a few minutes with the people of the United States about banking—
with the comparatively few who understand the mechanics of banking but more
particularly with the overwhelming majority who use banks for the making of deposits
and the drawing of checks. I want to tell you what has been done in the last few days,
why it was done, and what the next steps are going to be. I recognize that the many
proclamations from state capitols and from Washington, the legislation, the treasury
regulations, etc., couched for the most part in banking and legal terms should be
explained for the benefit of the average citizen. I owe this in particular because of the
fortitude and good temper with which everybody has accepted the inconvenience and
hardships of the banking holiday. I know that when you understand what we in
Washington have been about I shall continue to have your cooperation as fully as I have
had your sympathy and help during the past week.
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 3d 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 extend 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 which 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 clearing houses. That means about 250 cities of the United states.
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 members 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 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.
May 7, 1933.
On a Sunday night a week after my inauguration I used the radio to tell you about the
banking crisis and the measures we were taking to meet it. I think that in that way I
made clear to the country various facts that might otherwise have been misunderstood
and in general provided a means of understanding which did much to restore confidence.
Tonight, eight weeks later, I come for the second time to give you my report; in the same
spirit and by the same means to tell you about what we have been doing and what we are
planning to do.
Two months ago we were facing serious problems. The country was dying by inches. It
was dying because trade and commerce had declined to dangerously low levels; prices
for basic commodities were such as to destroy the value of the assets of national
institutions such as banks, savings banks, insurance companies, and others. These
institutions, because of their great needs, were foreclosing mortgages, calling loans,
refusing credit. Thus there was actually in process of destruction the property of millions
of people who had borrowed money on that property in terms of dollars which had had
an entirely different value from the level of March, 1933. That situation in that crisis did
not call for any complicated consideration of economic panaceas or fancy plans. We
were faced by a condition and not a theory.
There were just two alternatives: The first was to allow the foreclosures to continue,
credit to be withheld and money to go into hiding, and thus forcing liquidation and
bankruptcy of banks, railroads and insurance companies and a recapitalizing of all
business and all property on a lower level. This alternative meant a continuation of what
is loosely called "deflation", the net result of which would have been extraordinary
hardships on all property owners and, incidentally, extraordinary hardships on all
persons working for wages through an increase in unemployment and a further reduction
of the wage scale.
It is easy to see that the result of this course would have not only economic effects of a
very serious nature but social results that might bring incalculable harm. Even before I
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