Banking Act of 1935

Banking Act of 1935
Name	Banking Act of 1935
Long title	An Act to Amend the Federal Reserve Act and for Other Purposes
Enacted by	74th United States Congress
Introduced by	Senator Carter Glass
Signed by	President Franklin D. Roosevelt
Signed date	August 23, 1935
Related legislation	Glass–Steagall Act; Emergency Banking Act; Banking Act of 1933

Banking Act of 1935 The Banking Act of 1935 significantly restructured the Federal Reserve System and consolidated federal authority over banking regulation, reshaping monetary policy administration during the Great Depression and the New Deal. It centralized policy-making in Washington, created a more unified Federal Open Market Committee, and altered governance of the Treasury Department-related functions. The Act built on earlier legislation from the Seventy-third United States Congress and responded to debates among figures such as Carter Glass, Henry Morgenthau Jr., Paul Warburg, and President Franklin D. Roosevelt.

Background and Legislative Context

Legislative momentum for the Act derived from disruptions following the Stock Market Crash of 1929, the banking crises of 1930–1933, and reforms including the Glass–Steagall Act and the Emergency Banking Act. Stakeholders included members of the House Committee on Banking and Currency, the Senate Committee on Banking and Currency, officials from the Federal Reserve Board of Governors, leaders of the Federal Reserve Bank of New York, and executives from institutions such as J.P. Morgan & Co., National City Bank, and regional Federal Reserve Bank of Chicago. Intellectual influences traced to reformers like Hyman Minsky, advocates like Roscoe Pound, and earlier central banking debates involving Alexander Hamilton and Woodrow Wilson. International context featured comparative models from the Bank of England, the Bank of France, and central bank reforms in the Weimar Republic and United Kingdom after World War I.

Provisions and Key Changes

Major statutory changes included redefinition of the Federal Reserve Board of Governors' composition, expansion of the Federal Open Market Committee (FOMC), and clarified authority for open market operations, discount rates, and reserve requirements. The Act amended the Federal Reserve Act to vest appointment powers in the President of the United States and confirmation by the United States Senate, adjusted terms for governors, and transferred certain powers from the Federal Reserve Banks to the Board. It also addressed the legal status of federal reserve notes, emergency lending authorities, and the relationship between the Treasury Department and the Federal Reserve System. Provisions affected clearing and settlement practices, interactions with the United States Treasury, and supervisory oversight over member banks, aligning statutory language with practices in central banks like the Bank of Japan and the Swiss National Bank.

Structure and Powers of the Federal Reserve

The Act reconstituted the FOMC to include the Board of Governors and the presidents of the regional Federal Reserve Banks, with the Federal Reserve Bank of New York holding a permanent vote—reflecting its role in open market operations and international finance alongside institutions such as Goldman Sachs and Chase National Bank. The Board gained expanded authority over system-wide policy, including setting rediscount rates and reserve requirements, shaping interactions with Wall Street and markets tied to the New York Stock Exchange. By centralizing appointment and oversight processes, the Act altered governance relationships involving the Board of Trade of the City of Chicago, regional banking associations, and the American Bankers Association.

Impact on Banking Regulation and Monetary Policy

The Act's centralization facilitated coordinated monetary policy responses during fiscal crises and influenced later macroeconomic frameworks, including Keynesian approaches employed by advisors around John Maynard Keynes and policy debates in the Bretton Woods Conference. It constrained volatility in interbank markets, assisted in stabilization of the Federal Deposit Insurance Corporation, and altered lender-of-last-resort functions comparable to mechanisms in the European Central Bank in later decades. The changes affected capital flows involving London and Paris, and had implications for international arrangements like the Gold Standard adjustments and the International Monetary Fund's later formation. Financial market actors—investment banks, commercial banks, and clearinghouses—adapted to new regulatory expectations, influencing credit conditions during the Roosevelt Recession and beyond.

Political Debate and Passage

Passage occurred amid partisan and intra-administration debates between congressional leaders, Treasury officials, and regional bankers. Proponents such as Carter Glass and supporters in the Democratic Party (United States) argued for centralization to prevent systemic risk and ensure coherent policy, while opponents associated with the Republican Party (United States) and some regional bankers resisted concentration of authority in Washington. Lobbying by institutions including Chase National Bank, First National City Bank, and trade groups like the American Bankers Association colored hearings before the United States Senate Committee on Banking and Currency and the United States House Committee on Banking and Currency. President Franklin D. Roosevelt signed the Act in the context of broader New Deal legislation and shifting public attitudes after events such as bank holidays and the Bank Holiday of 1933.

Subsequent Amendments and Legal Legacy

Subsequent statutory and regulatory developments—including postwar acts, amendments from the Bank Holding Company Act of 1956, the Depository Institutions Deregulation and Monetary Control Act of 1980, and the Dodd–Frank Wall Street Reform and Consumer Protection Act—built on structural precedents set by the 1935 reforms. Judicial interpretation in cases before the Supreme Court of the United States and decisions influenced by scholars from institutions such as Harvard Law School, Columbia Law School, and Yale Law School clarified federal authority over monetary instruments and supervisory mandates. The Act's centralization of monetary policy remains a reference point in debates involving central banking independence, modernizations at the Federal Reserve Bank of San Francisco, and international comparisons involving the Bank for International Settlements.

Category:United States federal banking legislation Category:New Deal legislation Category:Federal Reserve System