Signals and Stigmas from Banking Interventions: Lessons from the Bank Holiday in 1933

A nationwide banking panic forced President Franklin Roosevelt to declare a nationwide banking holiday immediately after his inauguration in March 1933. The government reopened sound banks sequentially, with some resuming operations sooner and others later. Within three weeks, 11,000 of the nation’s 18,000+ banks had reopened. Another 3,000 reopened over the next three months. A comprehensive bank-level database reveals the public responded to signals sent by regulators’ actions. Rapidly reopened banks received more deposits than banks that reopened only a few weeks later. The stigma of late reopening lasted through the decade. While these signals and stigmas shifted substantial resources from stigmatized to lauded banks and from counties whose banks on average reopened slowly to counties whose banks reopened rapidly, the shifts in resources among institutions had no measurable impact on the rate at which the localities recovered. This result raises questions concerning the conventional wisdom regarding intervening in a banking system amidst a systemic crisis.