Banking Crisis Accelerates with 2,300 Bank Failures in 1931 as Hoover Resists Federal Intervention

A second wave of banking panics erupts in June 1931 centered in Chicago, where depositor runs beset networks of banks that had invested in declining real estate assets, resulting in approximately 2,300 bank suspensions during 1931—significantly more than the 1,350 failures in 1930. The crisis intensifies in September 1931 when Britain abandons the gold standard, triggering accelerated bank failures, deposit withdrawals, and currency hoarding across the United States. President Herbert Hoover resists direct federal intervention in the banking system, adhering to voluntarist principles that prove catastrophically inadequate as the economy spirals deeper into depression.

The 1931 banking crisis follows a brief period of apparent recovery in early 1931, when economic indicators had shown improvement following the initial panic of late 1930. However, beginning in April 1931, bank suspensions, deposit losses, and currency hoarding increase dramatically, with the crisis lasting until August before temporarily subsiding. The Chicago panic particularly affects nonmember banks outside the Federal Reserve System, exposing the vulnerability of a fragmented banking structure lacking deposit insurance or federal guarantees. When Britain leaves the gold standard on September 21, 1931, depositors panic about the security of their deposits, precipitating the third and most severe banking crisis of the early Depression period.

Hoover’s response reflects ideological commitment to voluntarism and minimal government intervention even as the crisis demonstrates the inadequacy of private-sector solutions. In the early fall of 1931, Hoover convinces leading bankers to organize the National Credit Corporation with a $500 million reserve to aid small, insolvent banks—but only after extracting a pledge that if this voluntary, non-governmental effort fails, he would support federal intervention. The voluntary scheme proves predictably ineffective, forcing Hoover to eventually support the Reconstruction Finance Corporation Act of 1932, which establishes limited federal lending to financial institutions. Between 1930 and 1933, more than 9,000 banks fail in the United States—equal to 30% of all banks in existence at the end of 1929—the highest concentration of bank suspensions in American history. The 1931 banking crisis demonstrates how commitment to laissez-faire ideology and resistance to government intervention can enable economic catastrophe that demands far more extensive federal action than earlier intervention would have required, establishing patterns of crisis response that persist through subsequent financial collapses.