Final answer:
The increase in bank runs before FDR's inauguration was due to the public's loss of confidence in the financial system during the Great Depression, leading to a pre-emptive withdrawal of funds for fear of bank insolvency. FDR instituted a bank holiday and implemented the Emergency Banking Act of 1933 to stabilize the banking system and restore consumer confidence.
Step-by-step explanation:
Bank Runs Before FDR's Inauguration
Before President Franklin D. Roosevelt's (FDR) inauguration, the United States was grappling with the Great Depression, leading to widespread financial instability. Bank runs increased during this period as depositors lost confidence in the banking system. Fearing their banks would become insolvent, depositors rushed to withdraw their savings, depleting banks' reserves and exacerbating the crisis. In some states, banking operations were entirely suspended to prevent systemic collapse. Recognizing the severity of the situation, FDR's immediate action upon taking office was to restore stability. He declared a four-day bank holiday and ushered in the Emergency Banking Act of 1933 to address insolvency and reorganize banks under federal oversight. This decisive action, coupled with the reassuring tone of FDR's first "fireside chat," played a critical role in restoring public confidence and preventing further bank runs.
Historically, bank runs were common in the nineteenth century and early twentieth century when negative net worth could lead to a rush of withdrawals, leaving banks unable to fulfill their obligations and thus facing closure. The culture of panic that arises from a bank run can turn a regular recession into an economic disaster by triggering a chain reaction affecting healthy banks. FDR's response in 1933, by providing federal approval for banks and reassuring the public, ultimately helped to mitigate the bank run phenomenon and restored consumer confidence.