INTER WAR YEARS 1919 TO 1939
THE GREAT DEPRESSION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The number of deposits increased over the next five years.
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They were able to make low interest loans.
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They could not meet the needs of their depositors.
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The number of new banks doubled over the next five years.
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Detailed explanation-1: -When stock values collapsed, banks lost money on their investments, and speculators defaulted on their loans. Having suffered serious losses, many banks cut back drastically on loans. With less credit available, consumers and businesses were not able to borrow as much money, sending the economy into a recession.
Detailed explanation-2: -The Depression Many of the small banks had lent large portions of their assets for stock market speculation and were virtually put out of business overnight when the market crashed. In all, 9, 000 banks failed–taking with them $7 billion in depositors’ assets.
Detailed explanation-3: -Many banks failed due to their dwindling cash reserves. This was in part due to the Federal Reserve lowering the limits of cash reserves that banks were traditionally required to hold in their vaults, as well as the fact that many banks invested in the stock market themselves.
Detailed explanation-4: -After the crash during the first 10 months of 1930, 744 banks failed – 10 times as many. In all, 9, 000 banks failed during the decade of the 30s. It’s estimated that 4, 000 banks failed during the one year of 1933 alone. By 1933, depositors saw $140 billion disappear through bank failures.
Detailed explanation-5: -Business houses closed their doors, factories shut down and banks failed. Farm income fell some 50 percent. By 1932 approximately one out of every four Americans was unemployed.