The American banking system was created in large part by two pieces of legislation — the National Bank Act of 1863 and the Federal Reserve Act of 1913. These measures were fine-tuned on a number of occasions, but the devastation brought by the Depression forced a harder look at banking practices.
By 1932, economic conditions had deteriorated worldwide and many people had sought to protect themselves by obtaining and hoarding gold. The result of this behavior was a contraction of credit.
In the United States, an effort was made to expand credit under the leadership of Senator Carter Glass, Democrat of Virginia, and Representative Henry B. Steagall, Democrat of Alabama. The result of their collaboration was what should be labeled the first Glass-Steagall Act, which accomplished the following:
- The Federal Reserve rules regarding the acceptability of commercial paper for rediscount purposes were liberalized.
- More than $750 million of the nation’s gold reserve was made available for loans to credit-worthy businesses and industries.
In the months following this measure's enactment, it appeared that significant progress was being made. The number of bank failures dropped sharply, which buoyed President Hoover
’s hopes for the future. However, in the winter of 1932-33, another wave of bank failures hit the country, creating a major banking crisis that awaited the attentions of the incoming Roosevelt administration
More far-reaching action would be taken during the early years of the New Deal
through the Banking Act of 1933 (sometimes called the second
Glass-Steagall Act) and the Banking Act of 1935.
See other aspects of Hoover's domestic policy