System

SYSTEM.

Thanks to the improvements in the banking system secured through the establishment of the Federal Reserve banks, the fi nancial operations incident to the World War involved no such dislocation as had occurred at an early stage in the Civil War; but it soon became evident that the American bank system was still seriously defective in the vital matter of solvency of large num bers of the commercial banks of the country.

The Reserve banks had no control over the conditions under which new banks might be organized, and by 192o the number of banks had increased to nearly 30,000. Moreover, the Reserve Banks were unable to exert an effective influence on the mana gerial policies of the banks—even of those that were members of the system (all national banks and such state banks as elected to become members) to say nothing of the majority of State banks that remained outside the system.

Between 1921 and banks, with deposits of $1,600, 000,000, failed. Most of these banks were of small size, situated in agricultural sections of the country, and their failure largely reflected the decline in agricultural prices which speedily followed the return of peace. With the more general depression that began in the autumn of 1929, failures became numerous among urban banks. Between January, 193o, and March, banks, with deposits of $3,400,o00,o0o failed. These numerous and wide spread failures inevitably weakened general confidence in the banks. Hoarding of currency and gold became rife, together with feverish transfers of funds to banks that still enjoyed some meas ure of public confidence.

In the early months of 1933, payments were suspended by all banks in one locality after another, and finally on March 4 of that year the Federal Government declared a banking holiday, closing all banks for the time being. A fortnight later all banks that were deemed to be reasonably solvent, some 14,00o in num ber, were reopened under a virtual governmental guaranty that they were in a reasonably sound condition. Later in the year a system of deposit insurance was established which, in its final form as adopted in 1935, provided for the insurance of all de posit accounts up to $5,000. Very nearly all the banks of the country became insured, paying annual assessments of one twelfth of one per cent. of gross deposits to the Federal Deposit Insurance Corporation, an agency of the Federal Government.

BIBLIOGRAPHY.

William M. Gouge, A History of Paper Money and Bibliography. William M. Gouge, A History of Paper Money and Banking in the United States (Philadelphia, 1833) ; Condy Raguet, A Treatise on Currency and Banking (Philadelphia, 184o) ; J. S. Gibbons, The Banks of New York, their Dealers, the Clearing-House and the Panic of 1857 (1858) ; Albert S. Bolles, Financial History of the United States (1884-86) ; Charles F. Dunbar, Chapters on the Theory and History of Banking (New York and London, 1929) ; H. White, Money and Banking (Boston, 193 5) ; A. D. Noyes, Forty Years of American Finance (1909) ; Davis Rich Dewey, Financial History of the United States (1903) ; D. Kinley, The Independent Treasury of the United States (1893) ; Report of the Monetary Com mission of the Indianapolis Convention (Chicago, 1898) ; W. G. Sum ner, A History of American Currency (1884) ; W. G. Sumner, A His tory of Banking in the United States (1896), being vol. i. in A History of Banking in All the Leading Nations; J. J. Knox, History of Banking in the United States (rev. ed., 1900) ; and C. D. Bremer, American Bank Failure, 1935; J. F. T. O'Connor, Banking Crisis and Recovery under the Roosevelt Administration (1938) .

Statistical information is in the annual reports of the comptroller of the currency of the U.S., and of the Federal Deposit Insurance Corpo ration, published annually at Washington. (0. M. W. S.)