How Does the Banking Act of 1935 Affect Us Today?

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 the FDIC's inception, there haven't been issues with insured money lost.

In addition to insuring deposits at thousands of institutions in the United States, the FDIC manages and regulates financial institutions to ensure they are following protocols. 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.

​Read More​: What Happens When a Bank Goes Bankrupt?

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.

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 many checks written in the U.S. as well as maintains a complex network of software that allows banks to process electronic transactions.

​Read More​: What Is the National Interest Rate?