As the web of corporate debtors grew larger, the banking system, which had financed the roaring twenties, found itself holding the bag for the excesses of the previous decade. The Fragile Foundation of Pre-Depression Banking Long before the stock market crash of 1929, the American banking system operated on precarious ground.
How the Money Supply Shrank and Banking Crumbled During the Great Depression
Many of these loans were secured by business inventory or real estate, values that evaporated as the Depression took hold. The wave of bank failures during the Great Depression remains one of the most catastrophic events in modern financial history.
This tight monetary policy exacerbated deflation, causing prices to plummet. Unlike today’s diversified institutions, most banks of the era were small, local unit banks with limited geographic diversification.
How the Money Supply Shrank and Accelerated Great Depression Banking Collapse
Between 1930 and 1933, nearly 11,000 of the nation's 25,000 banks vanished, taking savings and credit availability with them. Lack of Deposit Insurance and Public Panic The absence of federal deposit insurance was a critical amplifier of the crisis.
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