<P> Herbert Hoover had already considered a bank holiday to prevent further bank runs, but rejected the idea because he was afraid to trip a panic . Roosevelt, however, gave a radio address, held in the atmosphere of a Fireside Chat, and explained to the public in simple terms the causes of the banking crisis, what the government will do and how the population could help . He closed all the banks in the country and kept them all closed until he could pass new legislation . </P> <P> On March 9, 1933, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by Hoover's top advisors . The act was passed and signed into law the same day . It provided for a system of reopening sound banks under Treasury supervision, with federal loans available if needed . Three - quarters of the banks in the Federal Reserve System reopened within the next three days . Billions of dollars in hoarded currency and gold flowed back into them within a month, thus stabilizing the banking system . By the end of 1933, 4,004 small local banks were permanently closed and merged into larger banks . Their deposits totalled $3.6 billion; depositors lost a total of $540 million, and eventually received on average 85 cents on the dollar of their deposits; it is a common myth that they received nothing back . </P> <P> The Glass--Steagall Act limited commercial bank securities activities and affiliations between commercial banks and securities firms to regulate speculations . It also established the Federal Deposit Insurance Corporation (FDIC), which insured deposits for up to $2,500, ending the risk of runs on banks . This banking reform offered unprecedented stability: While throughout the 1920s more than five hundred banks failed per year; it was less than ten banks per year after 1933 . </P> <P> Under the gold standard, the United States kept the Dollar convertible to gold . The Federal Reserve would have had to execute an expansionary monetary policy to fight the deflation and to inject liquidity into the banking system to prevent it from crumbling--but lower interest rates would have led to a gold outflow . Under the gold standards price--specie flow mechanism countries that lost gold but nevertheless wanted to maintain the gold standard had to permit their money supply to decrease and the domestic price level to decline (deflation). As long as the Federal Reserve had to defend the gold parity of the Dollar it had to sit idle while the banking system crumbled . </P>

The new deal legislation that insures individual deposits up to a specific dollar amount is known as