How Does the Banking Act of 1935 Affect Us Today?

by Mo Mozuch
A customer is waiting at the bank.

The Banking Act of 1935 was passed as part of President Franklin D. Roosevelt's comprehensive economic reform package known as "The New Deal." It sought to reform the federal banking system and make it more accountable to the American people. It expanded two existing federal institutions—the Federal Reserve and the Federal Deposit Insurance Corp. Both were established as permanent regulatory institutions meant to oversee various sectors of the American banking industry. The responsibilities of each still impacts the American economy today.


The Federal Deposit Insurance Corp. is entrusted with the responsibility of maintaining the overall safety of America's financial institutions. Its primary function is to insure the deposits inside the American banks, up to $250,000 per person per insured bank. It was created in response to the massive bank failures of the Great Depression, during which time American citizens lost their savings if their bank failed. Since its inception, no depositor has lost a single cent of insured money due to bank failure. It currently employs more than 7,000 people and is headquartered in Washington D.C.

Other FDIC Responsibilities

In addition to insuring deposits, the FDIC also monitors more than 4,900 chartered banks in the United States. This accounts for more than half of all banking institutions in the nation. The FDIC makes sure the banks operate in a safe manner by checking for compliance with a variety of consumer protection laws, including the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Fair Credit Billing Act and the Truth-In-Lending Act. The FDIC also checks compliance with the Community Reinvestment Act, which is a law that requires banks to supply adequate credit to the regions they were chartered to service.

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Federal Reserve Role

The Federal Reserve, commonly referred to as "The Fed," is the U.S. government's authority on monetary policy. The Fed oversees the availability and cost of credit in the United States. Congress views the Fed as responsible for two of the economic factors needed to sustain a healthy economy: maximum sustainable output and employment, and low prices with stable inflation. The primary method the Fed uses to achieve these goals is to set the federal funds rate, which is the interest rate banks charge one another. This rate serves as the benchmark interest rate that financial institutions charge lenders nationwide.

Other Fed Responsibilities

The Fed is also responsible for ensuring that there is enough printed currency in circulation to meet demand. It mints the currency and prints reserve notes at four different locations and stores the cash in Federal Reserve Banks nationwide. Banks then place orders with the Reserve Banks for the currency and distribute it to their customers.The Fed also processes about one-third of all the checks written in the U.S. every year, as well as maintains a complex network of software that allows banks to process electronic transactions.

About the Author

Mo Mozuch has been writing professionally since 2005, when he began graduate school at Duquesne University. As a writer and editor he has won several awards, including the Columbia Scholastic Press Award for On-Going News Coverage in 2006. He has worked for College Prowler and been featured on Esquire.com

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