The Great Depression elucidated the shortcomings of the banking system and its control by Wall Street. The creation of the Federal Reserve System in 1913 was insufficient to correct flaws in the banking system until the Banking Acts of 1933 and 1935.
A.P. Giannini, the American-Italian founder of the Bank of America and Mormon Marriner S. Eccles, chairman of Federal Reserve Board (1935-1949), from California and Utah respectively, successfully worked to restrain the power of the eastern banking establishment. The Banking Act of 1935 was the capstone of their cooperation, a bill that placed open market operations in the hands of the Federal Reserve, thus diminishing the power of the New York Reserve. The creation of the Federal Housing Act, as orchestrated by Eccles, became a source of enormous revenue for Giannini. Giannini's wide use of branch banking and mass advertising was his contribution to American banking. Eccles's promotion of compensatory spending and eventual placement of monetary control in the hands of the Federal Reserve Board with Banking Act of 1935 and the Accord of 1951 and Giannini's branch banking diminished the likelihood of another sustained depression.
As the Bank of America grew, and as Eccles became more aggressive in his fight for control of monetary policy, Secretary of State Henry Morgenthau, Jr., became a common enemy to both bankers. Morgenthau caused the Securities and Exchange Commission to launch an investigation of the Bank of America. Later, when Eccles and Giannini were no longer friends, the Board of Governors filed suit under the Clayton Act against Transamerica, a Giannini bank holding company.
By 1945, Giannini's bank was the largest in the world. When John W. Snyder replaced Morgenthau, the "freeze" against Giannini's expansion stopped. Eccles was demoted by Truman but served on the Board of Governors until the Accord of 1951 making the Reserve no longer responsible for supporting the pegged interest rates of government bonds.
