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

A nationwide panic forced President Franklin Roosevelt to declare a banking holiday in March 1933. The government reopened banks sequentially using a process that sent noisy signals about banks’ health. New microdata reveals the public responded to these signals. Deposits at rapidly reopened banks grew quicker than deposits at comparable or stronger banks that reopened even a few days or weeks later. The stigma of late reopening lasted for a decade. This stigma shifted funds from stigmatized to lauded banks and among communities that they served, but the shift in funds across institutions and communities had no measurable impact on the rate at which localities recovered from the Great Depression.