Bank failures: After 1933
On his inauguration in March, 1933, President Franklin D. Roosevelt declared a national bank holiday, closing all the banks and administering another deflationary shock. As the banks reopened, however, depositor confidence returned. The Banking Acts of 1933 and 1935 created a federal program of insurance of bank deposits, and virtually all banks joined. The newly created FDIC was given the power to regulate insured banks. From 1934, the number and impact of bank failures decreased to such an extent that their effects on the U.S. economy became inconsequential. In the recession of 1937-1938, 59 banks failed, and that was the highest number of failures in any year between 1934 and 1941.
Bank failures were not eliminated, for individual banks continued to take risks. One major failure, for example, involved the Franklin National Bank in 1974—then the nation’s twentieth- largest bank. Other major episodes involved the Penn Square Bank (1982) and Continental Illinois (1984). After a flurry of failures during the early 1990’s, the annual failure rate dropped into single digits from1995 through 2007, except during 2002, when 12 banks failed.