1925-1949: A History of America's Banks and The ABA

1925: An Educational Foundation
To celebrate its 50th anniversary, ABA establishes the Educational Foundation with a $500,000 endowment. The foundation’s first initiative was to fund economic research at several colleges.
1928: Equalizing Bank Treatment
Congress passes the McFadden Act, equalizing branch banking by national and state banks. National banks are permitted to establish full-service branches within the cities in which they were located provided state banks had similar authority and subject to other state restrictions. National banks are also permitted to deal directly in investment securities, and banks are permitted to make five-year first mortgage loan.
1928: Driving Innovation
City Center Bank, Kansas City, Mo.—a predecessor of UMB Financial Corporation—becomes one of the first known banks to offer drive-through banking services.
1929: Black Monday
The stock market collapses in October 1929. October 28—“Black Monday”—and the following day see a combined drop of a quarter in the Dow Jones Industrial Average. The stock market will decline 89 percent over the following three years.
1930: Settling Up
The Bank of International Settlements is established in Basel, Switzerland, through a treaty agreed to by Belgium, France, Germany, Italy, Japan, Switzerland, the United Kingdom and the United States. Melvin Alvah Traylor, who served as ABA president in 1926-27, was a member of the U.S. delegation. Although the BIS is initially established to process post-World War I German reparations payments, the Great Depression helps to turn it into a forum for cooperation by central banks and a vehicle for promoting worldwide financial stability, often by making emergency loans to struggling European central banks.
1931: The Banking Crisis Ramps Up
Great Britain goes off the gold standard, prompting a run on the gold-backed dollar. In the ensuing six-month liquidity crisis, in which the Federal Reserve fails to increase the amount of credit outstanding, more than 1,800 U.S. banks fail. Hoover establishes a National Credit Corporation—a $400 million fund contributed by large banks to provide emergency liquidity to smaller at-risk banks.
1932: Too Little, Too Late?
Congress responds to the banking crisis with a series of interventions, including the Federal Home Loan Bank Act (setting the equivalent of a Federal Reserve System for savings and loans) and a law creating the Reconstruction Finance Corporation (chartered with $500 million to lend to ailing banks). The Federal Reserve launches open market activity on an unprecedented scale, pumping money into banks in an effort to force down bond rates.
1932: Bank Runs, Bank Holidays
Following a ruling by the House of Representatives that banks borrowing from the Reconstruction Finance Corporation must disclose their borrowers, quiet runs on banks begins. Some western mayors declare bank holidays; the lieutenant governor of Nevada declared a 12-day holiday and other states instituted similar restrictions. Bank holidays continue into 1933, with more bank closings occurring.
1933: A New Deal for Bankers
As the banking crisis continues—10,000 banks have failed since the 1929 crash, with nearly 4,000 failing this year—newly inaugurated President Franklin D. Roosevelt invokes the Trading with the Enemy Act to declare a nationwide banking holiday and calls a special session of Congress. Two thousand banks will never reopen. Congress passes the Emergency Banking Relief Act, permitting the issue of currency without gold backing and granting the comptroller of the currency additional powers for reorganizing banks. In Roosevelt’s first radio “fireside chat,” he assures the nation that reopened banks are now safe; FDR adviser Ray Moley later reflects that “capitalism was saved in eight days.”
1933: Extreme Makeover: Home Edition
The Federal Home Loan Bank Board is given the authority to charter and supervise federal savings and loan associations and to oversee the S&Ls’ newly established deposit insurance fund. The Home Owners’ Loan Corporation Act established an agency to refinance defaulted home loans over longer terms to prevent foreclosure, eventually refinancing a fifth of outstanding U.S. mortgages.
1933: Banking Safety
The Banking Acts of 1933 and 1935 establish the Federal Open Market Committee to replace the Open Market Investment Committee of the Federal Reserve System. The ABA-opposed Glass-Steagall Act is passed, providing for the separation of commercial and investment banking and authorizing a Federal Deposit Insurance Corporation to start operations on Jan. 1, 1934.
1934: Continued Change
The Federal Deposit Insurance Corporation opens for business. Meanwhile, the National Housing Act creates the Federal Housing Administration to insure mortgages and the Federal Savings and Loan Insurance Corporation to insure deposits at thrifts. FHA financing features smaller down payments of 20 percent on a fully amortizing, 20-year fixed rate loan. “This did more than merely revive the mortgage market,” writes economic historian Niall Ferguson. “It reinvented it.”
1934: Chicago Shootout
John Dillinger, America’s most notorious bank robber, is killed in Chicago.
1935: Tweaking Deposit Insurance
The Banking Act of 1935 extends the regulatory powers of the Federal Reserve and authorizes the FDIC to set standards for member banks, examine those banks to ensure compliance, take action to reduce the potential of troubled banks failing and pay depositors if an insured bank fails. The bill also repeals “double liability,” under which a failed bank’s stockholders are liable for losses of depositors up to the amount of their stock holdings. ABA President Rudolph Hecht notes that ABA’s advocacy makes the bill “much sounder” than when originally introduced.
1935: Banking on Learning
Harold Stonier, the head of education at ABA and future chief executive, opens the ABA Graduate School of Banking at Rutgers University with 220 students. Now located at the University of Pennsylvania’s Wharton School, the school is named for Stonier.
1938: Making Home More Affordable
The Reconstruction Finance Corporation organizes the Federal National Mortgage Association, which will eventually become known as Fannie Mae, to provide banks with federal funds to finance home mortgages.
1941: Lending for Battle
As war looms, ABA forms a committee to encourage banks to lend for war production purposes, to facilitate war credit and to work as a liaison with the federal government. After Pearl Harbor, U.S. commercial banks play a key role in financing the war effort. Their large purchases of government bonds leave them well positioned to lend in the postwar economy.
1943: Ration Coupons
Under the supervision of the Office of Price Administration, banks distribute ration coupons for sugar, coffee and gasoline. Later, processed foods, meat, fats, shoes and fuel oil were added. An ABA committee is the liaison between the OPA and commercial banks, making the program run more effectively.
1944: Inventing Modern Finance
The international monetary conference of 44 nations is held in Bretton Woods, N.H., and brings about the formation of the International Bank for Reconstruction and Development, also known as the World Bank, and the International Monetary Fund as part of the economic foundation for a peaceful and prosperous postwar world.
1944: Housing the G.I.s
One of the provisions of the G.I. Bill of Rights legislation passed by Congress in 1944 is the provision of low-interest home loans, with the first such loan made in 1944. ABA creates a committee to help returning servicemen understand and use the G.I. Bill’s financial benefits.
1944: Responding to Housing Needs
Foreseeing pent-up demand for housing once the war ends, thrifts develop the Uniform Savings Loan Plan, offering a 20-year term and options to temporarily defer payments and receive advances for home improvements. By 1953, the popular US Loan Plan accounts for $330 million in thrift assets.
1946: It’s a Wonderful Movie
James Stewart stars in Frank Capra’s It’s a Wonderful Life as a small-town community banker in the troubled years of the Great Depression and World War II. The movie becomes Hollywood’s best known positive portrayal of the banking industry.
1947: Expanding the Credit Box
During the emergency times of World War II, the Federal Reserve had restricted consumer credit. With that regulation due to expire, ABA publishes a Consumer Credit Creed as a basis for bank policies. “Although a bank must be competitive, it must maintain its practices and policies on a plane which will not bring disrepute to banking, and keep all advertising restrained, truthful and exact,” it says in part.
1947: In the Vault
First Chicago Bank offers the country’s first individual customer safety deposit box.
1949: Banker of the Rising Sun
Detroit banker and former ABA President Joseph Dodge goes to Japan to serve as Gen. Douglas MacArthur’s chief financial adviser in rebuilding the Japanese economy—balancing the budget to reduce runaway inflation, making tax collection more efficient, reducing government intervention and pegging the yen to the dollar to promote exports. After the occupation ends in 1952, Dodge becomes budget director in the Eisenhower White House.

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1925-1949: A History of America's Banks and The ABA

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