Hoover's advisors contributed to FDR's first banking legislation and FDR was opposed to the FDIC

He closed all the banks in the country and kept them all closed until he could pass new legislation.<16> On March 9, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by Hoover's top advisors. The act was passed and signed into law the same day. It provided for a system of reopening sound banks under Treasury supervision, with federal loans available if needed. Three-quarters of the banks in the Federal Reserve System reopened within the next three days. Billions of dollars in hoarded currency and gold flowed back into them within a month, thus stabilizing the banking system. By the end of 1933, 4,004 small local banks were permanently closed and merged into larger banks. (Their depositors eventually received on average 86 cents on the dollar of their deposits; it is a common false myth that they received nothing back.) In June, over Roosevelt's objections, Congress created the Federal Deposit Insurance Corporation (FDIC), which insured deposits for up to $2,500.

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The U.S. Deposit Insurance System

The first national deposit insurance system in the world was the FDIC. It was created in 1933 during the Great Depression to restore public confidence in the U.S. financial system and to protect small depositors. At the time of its creation, the U.S. was in the midst of the largest financial crisis in its history. During the first few months of 1933, 4,000 U.S. banks suspended operations. Bank runs had become commonplace and President Roosevelt was forced to impose a national banking holiday. The issue of the moment was how to restore confidence in the banking system.

When the FDIC was created, there was no national system of deposit insurance in the world. President Roosevelt actually opposed its creation, even threatened to veto the legislation that was to create the FDIC. He was concerned about the moral hazard that can occur when protection extended to depositors makes them less diligent in the selection and monitoring of their banks, and makes banks less careful in their lending practices. Banking industry groups also opposed the FDIC's creation because they were concerned about the premiums their members might have to pay.

But the American public demanded a system of deposit insurance that would provide a safe place for people to put their money. The public had experienced widespread bank runs and did not want to have that experience again. Broad public support overcame the obstacles to the creation of the FDIC.

Without a doubt, the FDIC helped restore public confidence in the U.S. financial system. In 1934, the year after the FDIC was created, only nine banks failed compared to 4,000 bank closures during the nine months prior to its creation. Deposit insurance effectively ended bank runs in the U.S. The FDIC is widely viewed as one of the most successful legacies of that era, and remains highly relevant to the challenges facing the U.S. financial system today.

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While the New Deal did much to lessen the worst affects of the Great Depression, its measures were not sweeping enough to restore the nation to full employment. Critics of FDR's policies, on both the right and the left, use this fact as a reason to condemn it. Conservatives argue, for example, that it went too far, and brought too much government intervention in the economy, while those on the left argue that it did not go far enough, and that in order to be truly effective, the Roosevelt Administration should have engaged in a far more comprehensive program of direct federal aid to the poor and unemployed. But the New Deal's greatest achievements transcend mere economic statistics, for in a world where democracy was under siege, and the exponents of fascism and communism flourished, the New Deal offered hope and restored the faith of the American people in their representative institutions. It also transformed the federal government into an active instrument of social justice and established a network of laws and institutions designed to protect the American economy from the worst excesses of liberal capitalism.

One of the most striking benefits of the New Deal was that it restored the confidence of a deeply discouraged population. FDR's use of the media, particularly his mastery of radio communication with the American people through his "Fireside Chats," restored the spirit of the nation as he worked to lift the economy out of the Great Depression.