By 1932, nearly 9,000 American banks had failed, plummeting the nation into the worst economic disaster in American history What was the primary reason so many banks failed during the period?
By 1932, nearly 9,000 American banks had failed, plummeting the nation into the worst economic disaster in American history What was the primary reason so many banks failed during the period?
The correct option is A Great Britain and France had failed to repay the loans taken out during the First World War.
The
market crash weakened the nation's banks in two ways. First, by 1929, banks had
lent billions to stock speculators. Second, many banks had invested depositors'
money in the stock market, hoping for high returns. 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. Some banks could
not absorb the losses they suffered and had to close. The government did not
insure bank deposits, so if a bank failed, customers, including even those who
did not invest in the stock market, lost their savings. As a growing number of
banks closed in 1929 and 1930, a severe crisis of confidence in the banking
system further destabilized the economy. News of bank failures worried
Americans. Some depositors made runs on banks, thus causing the banks to fail.
A bank run takes place when many depositors decide to withdraw their money at
the same time, usually out of fear that the bank will collapse. Most banks make
a profit by lending money received from depositors and collecting interest on
the loans. The bank keeps only a fraction of depositors' money in reserve.
Usually, that reserve is enough to meet the bank's needs. If too many people
withdraw their money, however, the bank will collapse. By 1932, about one in
four banks in the United States had gone out of business.
The market crash weakened the nation's banks in two ways. First, by 1929, banks had lent billions to stock speculators. Second, many banks had invested depositors' money in the stock market, hoping for high returns. 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. Some banks could not absorb the losses they suffered and had to close. The government did not insure bank deposits, so if a bank failed, customers, including even those who did not invest in the stock market, lost their savings. As a growing number of banks closed in 1929 and 1930, a severe crisis of confidence in the banking system further destabilized the economy. News of bank failures worried Americans. Some depositors made runs on banks, thus causing the banks to fail. A bank run takes place when many depositors decide to withdraw their money at the same time, usually out of fear that the bank will collapse. Most banks make a profit by lending money received from depositors and collecting interest on the loans. The bank keeps only a fraction of depositors' money in reserve. Usually, that reserve is enough to meet the bank's needs. If too many people withdraw their money, however, the bank will collapse. By 1932, about one in four banks in the United States had gone out of business.
