Phase I ('pre-accommodation'): Bank deposits have existed even longer than bank notes. Yet, they became systemically relevant as a private credit money form only after the accommodation of bank notes when they began to trade at par to bank notes and commodity money. In the U.S., the number of banks and especially deposit-issuing trust companies (the shadow banks of the age) increased sharply in the late 19th century, which made the volume of deposits in the financial system multiply. In 1913, the decision was taken to follow the British model and to put in place liquidity backstops for bank deposits by establishing the Federal Reserve, which—at this time—was still a privately controlled institution.
Phase II ('accommodation): The accommodation was initiated by the 1929 Financial Crisis. In the subsequent Great Depression, the U.S. financial system was subject to a multi-annual banking crisis, which appeared in four waves between 1930 and 1933. It could only be stopped when newly elected President Franklin Delano Roosevelt declared a National Banking Holiday and, by holding his First Fireside Chat on radio and passing the Emergency Banking Act in March 1933, announced an implicit 100% government guarantee for bank deposits. This established an ad hoc solvency backstop and turned deposits into a form of private-public money.
After the accommodation, a short regulatory process ensued and led to the Banking Acts of 1933 and 1935. These acts passed permanent regulations for deposits as a private-public money form. On one hand, they improved the public liquidity guarantee for bank deposits by re-organizing the Federal Reserve System and putting it effectively under public control. On the other hand, by bringing the Federal Deposit Insurance Compancy (FDIC) into being, they provided an explicit solvency backstop for deposits in case of the issuing bank’s insolvency. In addition, they introduced strict prerequisites regarding the regulation and supervision of banks—first and foremost the separation between commercial and investment banking. Over time, the public-private partnership for bank deposit creation with publicly provided liquidity and solvency backstops became the norm internationally.
Accommodation of bank deposits in 1933: US President Franklin D. Roosevelt publicly guarantees bank deposits in his First Fireside Chat, Image: wikipedia.org