1914 - 1935

All this mattered little when the Great Depression struck with devastating force after 1929. First to feel the effects were banks involved in stock trading—and those whose customers were. Unfortunately, the 1920s bull market on Wall Street had brought millions of Americans into the market for the first time, and many of them were wiped out when the market turned against them. Loan losses soared, and bank deposits dwindled. Whole industries shut down. As the crisis worsened, people lost their jobs, their homes, and their hopes.

At the first rumor that a bank was in trouble, people would typically scramble to withdraw their deposits. Federal deposit insurance, which was enacted in 1933, helped restore public confidence.

On March 6, 1933, just two days after taking office, President Franklin D. Roosevelt declared a bank "holiday"—a respite designed to calm frazzled nerves, conserve assets, and begin the process of healing the nation's shattered banking system. The OCC played a major role in that effort. The temporary shutdown of the nation's banks was no holiday for state and national bank examiners, who worked under heavy pressure to review the condition of thousands of banks and decide whether to issue or deny them the licenses they needed to reopen. National banks failing the test were placed into OCC-supervised receiverships that liquidated the banks' assets. Banks judged to be salvageable were returned to private management, offered government capital until money could be raised privately, and placed under intensive supervision to nurse them back to health.

For many Americans, the crisis underscored the weaknesses of the existing regulatory framework, with its liberal if not runaway chartering, inconsistent supervision, and regulations that allowed banks to engage in the riskiest activities. Major changes came with the passage of the Glass–Steagall Act of 1933, which created "firewalls" separating investment and commercial banking, regulated many deposit products, and raised minimum capital requirements for national banks. Glass–Steagall also created a system of federal deposit insurance, which proved instrumental in restoring public confidence and luring funds back into the banks, where the money could be used to promote recovery. State banks that opted for protection under the federal deposit insurance umbrella were subject to co-supervision by the newly created Federal Deposit Insurance Corporation (FDIC) and state banking authorities—an important step toward more consistent supervisory standards.

By now, there were three major federal bodies regulating commercial banks—the OCC, the Federal Reserve, and the FDIC—as well as authorities in each state. Calls to resolve differences in how the agencies' examiners rated banks and evaluated their assets led to a 1937 interagency agreement that prescribed a more consistent treatment of loans and securities and common reporting forms. Differences persisted nonetheless, as each agency adopted its own policies within the shared framework.

A new era of conservatism and government involvement in banking was about to begin.