Recognized as the last major accomplishment of the Second New Deal of 1935 and as the most important banking reform of the New Deal, the Banking Act of 1935 produced the first substantial modification of the Federal Reserve system since its inception in 1913. It gave the federal GOVERNMENt effective control of the banking system and MONEtARY policy.
In 1934, President Franklin D. RoosEVELt appointed Marriner Eccles to head the Federal
Reserve Board, and Eccles then drafted a banking bill that would give the federal government more control over money and credit. Sent to Congress in February 1935, the bill passed the House of Representatives relatively easily. It encountered resistance in the Senate, however, particularly from Virginia’s Carter Glass, a principal architect of the 1913 Federal Reserve Act who opposed centralized federal control of banking, and from many private bankers, especially the big New York bankers. In June, FDR made the bill a “must” item of legislation. Despite the fact that Glass rewrote much of the bill, the final draft, though not as far-reaching as originally intended, kept many of Eccles’s main objectives intact.
The banking act, signed by Roosevelt on August 23, 1935, had several key features. It created a strong, central board of governors of the Federal Reserve System that could control the operations of regional banks and manage discount and interest rates. The law centralized open-market operations (the sales and purchases of government securities to affect interest rates) in the Federal Open Market Committee in order to reduce the influence of the private bankers and to consolidate control of the U. S. money market. The law also empowered the president to appoint seven members to this newly formed board of governors, with the consent of the Senate, for 14-year terms. Eccles was appointed chairman of the new board of governors. Finally, the act also completed the implementation of deposit insurance and the Federal Deposit Insurance CoRPoRAtioN (FDIC), which was initiated under the Banking Act of 1933. State banks were required to join the Federal Reserve System before July 1, 1942, if they wanted the benefits from the FDIC.
Further reading: Helen M. Burns, The American Banking Community and New Deal Banking Reforms, 1933-1935 (Westport, Conn.: Greenwood, 1974); Marriner Eccles, Beckoning Frontiers: Public and Personal Recollections (New York: Knopf, 1951).
—Michael T. Walsh
Baruch, Bernard M. (1870-1965) financier, presidential adviser
A millionaire stock speculator, Bernard Baruch offered advice to the administration of President Franklin D. RoosEVELt, as he did to presidents from Woodrow Wilson to Lyndon B. Johnson. He assiduously cultivated the press and his own public image as the “park-bench statesman” and adviser to presidents.
Bernard Mannes Baruch was born in South Carolina, graduated from City College of New York, and became a millionaire by the time he was 30 by virtue of his success on the stock market. During World War I, President Wilson appointed Baruch head of the War Industries Board, and Baruch won a favorable public reputation for his role in helping to increase American war production. He was an influential member of the Democratic Party during the 1920s, and gave financial support to many Democrats in the Congress, especially those sharing his pro-BusiNEss views.
In the election of 1932, Baruch did not endorse Roosevelt until after FDR had won the Democratic nomination. Though a number of Roosevelt’s advisers were wary of Baruch, his standing in the Democratic Party and the money he could bring to the campaign led Roosevelt to suggest that he consult with the Brain Trust on industrial recovery policy. Baruch’s protege, General Hugh Johnson, became the first administrator of the National Recovery Administration, a New Deal agency modeled on the War Industries Board. Other Baruch associates, including George Peek, the first head of the Agricultural Adjustment Administration, also had significant roles in New Deal programs. Baruch himself remained close to conservative Democrats, had a good relationship with Eleanor Roosevelt, and maintained his cordial relations with the press.
Baruch’s relationship with FDR and other New Dealers remained strained, however, as his career in World War II revealed. At first, Roosevelt attempted to keep him at arm’s length, but Roosevelt eventually named him to lead an investigation of the rubber shortage. FDR then agreed that Baruch might become head of the War Production Board (WPB), but the president backed away from the appointment and it never eventuated. Toward the end of the war, Baruch coauthored a report on reconversion for the WPB that played an important role in shaping reconversion policy in a way favorable to business.
After the war, Baruch presented American recommendations on atomic energy to the United Nations. But President Harry S. Truman, like others, thought Baruch self-serving and cut ties with him after Baruch refused to serve on Truman’s 1948 reelection committee. Nonetheless, Baruch’s public reputation remained such that Presidents John F. Kennedy and Lyndon B. Johnson made a point of consulting with him in the 1960s.
Further reading: Jordan A. Schwarz, The Speculator: Bernard Baruch in Washington, 1917-1965 (Chapel Hill: University of North Carolina Press, 1981).
World History
