Business and Industry
Bank Crisis
Hoover and Domestic Policy

One of the most significant aspects of the Great Depression in the United States was the erosion of confidence in the banking system. Weaknesses were apparent by 1930 and a growing wave of failures followed. As banks closed their doors, a chain reaction occurred that spread misery throughout the country.

One immediate result of bank closures was the contraction of the money supply. With less money in circulation, the purchasing power of consumers was sharply reduced. Manufacturers and retail establishments attempted to entice consumers by dropping prices on their goods — a move that was largely in vain. Unable to move their merchandise, factories and stores then resorted to scaling back production and cutting the work force.

By the end of 1932, more than 13 million American workers were unemployed. Anxious citizens withdrew their deposits from banks and hoarded cash and gold. By early the next year, more than 9,000 banks had failed. In early February, Louisiana declared a one-day bank holiday in the hope that the institutions could reorganize and meet the demands of depositors. Conversely, the pace of deterioration quickened.

On March 14, the state of Michigan, home of the nearly prostrate auto industry, announced an eight-day holiday and in the process touched off panics in neighboring states.

By Inauguration Day in March, nearly all of the nation’s banks were either closed or had at one point been closed, and of those remaining open, most were operating under special state rules designed to protect them.

Outgoing Herbert Hoover blamed President-elect Franklin Roosevelt for the deterioration of public confidence in the banks. Hoover had asked on several occasions for public declarations from Roosevelt that he would maintain balanced budgets and do all within his power to fight inflation — promises that would have meant more to the business and financial communities than to the millions of unemployed. Roosevelt refused to allow his future commitments to be pinned down, which left Hoover angry and anxious to be out of office.

See other aspects of Hoover's domestic policy.

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