Bank Runs During the Great Depression Essay
Bank Runs During the Great Depression
The Great Depression was one of the longest lasting economic declines in Western history, sparked by the stock market crash of 1929, and ending around 1939. During the Great Depression, there were many incidents of banks failing, For example, many banks experienced bank runs. These situations deeply affected the average citizen’s confidence in the banking system. Bank Runs severely crippled the banking system, and caused many banks to fold. During a bank run, many bank customers lose confidence in the system and quickly withdraw their money all at the same time (The Great Depression — History. om Articles, Video, Pictures and Facts).
Since banks only have a small portion of the deposits at any one time, they have to dump all their financial assets, usually far below market rate, and cash in on their loans in order to pay the depositors (The Great Depression — History. com Articles, Video, Pictures and Facts). This process causes banks to lose a lot of money, and the amount of money lost may lead them to fail (The Great Depression — History. com Articles, Video, Pictures and Facts).
Bank Runs weakened the economy, due to the fact that many of the deposits that were previously in the banks and used for investment was kept by the many depositors, as well as investor confidence being dampened by these events (Press 14). At the height of the bank runs, more than 1300 banks closed down (The Great Depression — History. com Articles, Video, Pictures and Facts). However, this crisis was ended with the passing of the “Emergency Banking Act”, which allowed the Treasury Department to oversee the reopening of more than half of the banks that were previously closed (Press 14).
The Treasury Department also insured the deposits of banks that were members of the “Federal Reserve System”, giving customers newfound faith in the banking system (Press 14). The effects of the bank runs can be indirectly found in To Kill a Mockingbird, when it is seen that families such as the Cunninghams, who have no money to pay for services, and instead use a form of barter trade (Lee 23). This implies that they have a lack of cash, either because their money is stored in assets, or their savings were wiped out by the bank runs which caused many banks to fail.
Even if they tried to sell what they owned, it would be unlikely anyone would come up with the cash to buy their property, as most people hoarded cash, unwilling to invest it due to the financial situation (The Great Depression — History. com Articles, Video, Pictures and Facts). The Great Depression was a dark period in the history of Western Civilization, as it proved how easily people could lose faith, especially during the bank runs, where at times a small rumor could spark a bank run all on its own (The Great Depression — History. om Articles, Video, Pictures and Facts).
The bank runs crippled the American banking system, and almost destroyed it as a whole. This severely affected the average American family, as there was the risk of their savings being completely wiped out, with little cash to go around, especially since this was during the Great Depression. This was a major event in American history, as it showed how easily a problem can cause other problems, as shown by how easily the stock market crash of 1929 started the Great Depression.
Subject: Great Depression,
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 9 October 2016
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