12. The Banking Act of 1933 and the creation of the Federal Deposit Insurance Corporation
Most Americans were not directly impacted by the collapse of the stock market in 1929, for the simple reason that they did not have significant savings invested there. It was the loss of jobs which ensued which drove America into the Great Depression. Banks suddenly found themselves unable to pay the deposits which they held, and runs on banks generated a nationwide panic by banks and their depositors. The result was banking reform in the Banking Act of 1933 and the establishment of the FDIC to insure the savings of depositors. Although it was championed by liberals in congress and today is considered to have been part of the New Deal, it was not supported by FDR.
Some historians have quoted FDR as calling the Banking Act of 1933, “the most important and far-reaching legislation ever enacted by the American Congress”. Roosevelt did use those very words in a speech in 1933, but he was referring to the National Industrial Recovery Act, another piece of legislation which he did champion and which he signed on the same day. The FDIC insured the savings of Americans (with upper limits), allowing smaller banks to compete with larger, providing prospective depositors security over their savings. Many of the protections offered to consumers by the Banking Act and the FDIC have been circumvented and weakened by acts of congress in the more than 80 years that have transpired.