INTER WAR YEARS 1919 TO 1939
THE GREAT DEPRESSION
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Depositors withdrew their cash from banks
|
|
|
Stock brokers paid back their loans
|
|
|
Investors called for the Government to regulate banks
|
|
|
Banks increased interest paid to depositors
|
Detailed explanation-1: -Thousands of banks failed during the Depression and loss of confidence caused anxious depositors to create “runs” on banks as they tried to withdraw their money before the banks collapsed.
Detailed explanation-2: -The most common cause of bank failure occurs when the value of the bank’s assets falls to below the market value of the bank’s liabilities, which are the bank’s obligations to creditors and depositors. This might happen because the bank loses too much on its investments.
Detailed explanation-3: -Deflation increased the real burden of debt and left many firms and households with too little income to repay their loans. Bankruptcies and defaults increased, which caused thousands of banks to fail. In each year from 1930 to 1933, more than 1, 000 U.S. banks closed.
Detailed explanation-4: -The European banking crisis of 1931 was a major episode of financial instability that peaked with the collapse of several major banks in Austria and Germany, including Creditanstalt on 11 May 1931, Landesbank der Rheinprovinz on 11 July 1931, and Danat-Bank on 13 July 1931.
Detailed explanation-5: -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.