Soothing the People's Panic: The Banking Crisis of the 1930s in Philadelphia
[For many Philadelphians, the failure of Bankers Trust Company brought the Great Depression painfully close to home, perhaps for the first time. After all, it was the first large bank to fail in Philadelphia after the stock market crash the year before, and its closure left more than 100,000 depositors facing financial ruin.
However, Bankers Trust Company was not the only local bank to fall victim to the severe economic downturn. In the following essay, historian R. Daniel Wadhwani reviews the banking crises in Philadelphia during the 1930s, as well as the steps taken by the federal government to prevent these types of bank failures in the future. - Editors]
“I remember crowds of people lined up outside, people were all lined up, snake like, hundreds of people,” recalled Walter Cook. “They were all out there, I couldn’t see which way they were going.” Cook was a teller for the First Penny Savings Bank in South Philadelphia during the banking panic that struck the city in October 1931. A couple of miles away, James Willcox, the president of the Philadelphia Saving Fund Society (PSFS), used a megaphone to bark instructions at a mob of depositors packed into the bank to withdraw savings. PSFS officers “made frequent trips through the crowds . . . talking to groups of depositors and endeavoring to reassure them that the Society had never been in better financial condition,” but they found most of their clients “thoroughly alarmed.” At the Frankford Trust Company in Northeast Philadelphia, worried depositors were standing in a line that spilled out onto the street when H. Shepard Royle, the owner of the Breslin Textile Company, walked by. He was so incensed by the crowd of “mostly foreigners” that, according to the description of a neighborhood paper, “he raised his voice in a forceful heart to heart address to them.” Royle apparently lacked Jimmy Stewart’s rhetorical skill in soothing panicked depositors; the bank’s deposits fell by 36 percent within a couple of weeks, almost putting it out of business.
So iconic are the images of the banking crises of the 1930s that they have come to represent the Great Depression itself. And indeed, their central place in historical memory is well deserved. More than 9,000 banks failed, about 30 percent of all institutions. (In comparison, approximately 350 banks have failed during our current economic crisis.) In all, 30 of Philadelphia’s 89 banks and trust companies and hundreds of the city’s building and loan associations failed between July 1930 and March 1933. Even the institutions that survived often experienced crippling withdrawals as crowds of depositors converted their savings into cash. During this same period, deposits in the city had declined by 23 percent.
The United States actually experienced a series of severe regional panics that eventually culminated in March 1933 with a spiraling national crisis. Though countless smaller bank runs took place throughout the early years of the Depression, the four major episodes were in late 1931, April–August 1932, October 1932, and March 1933. Philadelphia was particularly hard hit during the latter two. These episodes were triggered by loss of depositor confidence in the region caused typically by a local event that led savers to question the solvency of their own institution. Because underlying developments had made the American banking system structurally weak, it was susceptible to panics and widespread failures.
This weakness in American banking was created by the proliferation of thousands of small financial institutions over the previous decades. Whereas other industrializing countries allowed the development of large regional and national financial institutions, American policymakers preferred rules and regulations that kept financial institutions relatively small, local enterprises; restrictions on the branching and expansion of banks combined with relatively easy incorporation helped ensure the proliferation of many small institutions. In the first three decades of the 20th century the growing affluence of American households also increased reliance on such institutions for everything from saving to investing to mortgage financing. These trends were given an additional boost in the 1920s as World War I liberty loans matured and bondholders used their proceeds to open bank accounts or invest in stocks. Philadelphia alone had thousands of financial intermediaries by the eve of the Depression.
The city’s financial institutions were rich in variety as well as in number. There were old and venerable financial establishments. PSFS, the nation’s first savings bank, was established in 1816. This and the city’s other three mutual savings banks were designed to allow working-class citizens to accumulate financial nest eggs securely. Some of Center City’s commercial banks were among the first in the nation to finance commerce and business development. These older institutions were generally stable and well-managed and had long been crucial to the economic health of the city.