How did the Great Depression affect the stability and functioning of the banking institutions?

The Great Depression had a profound impact on the stability and functioning of banking institutions.

Firstly, the stock market crash of 1929 triggered a wave of panic among investors, leading to a massive withdrawal of funds from banks. This sudden loss of confidence in the banking system resulted in widespread bank runs, where depositors rushed to withdraw their money, fearing that the banks would collapse. As a result, many banks faced a severe liquidity crisis, as they did not have enough cash reserves to meet the demands of depositors.

Secondly, the economic downturn caused by the Great Depression led to a sharp increase in loan defaults and bankruptcies. Many businesses and individuals were unable to repay their loans, causing significant losses for banks. This further weakened the financial position of banks and eroded public trust in the banking system.

To address the crisis, the government implemented a series of measures. The Federal Reserve, for instance, attempted to stabilize the banking system by injecting liquidity into the economy and lowering interest rates. However, these efforts were not sufficient to prevent the collapse of numerous banks.

The impact of the Great Depression on banking institutions was devastating. Between 1929 and 1933, over 9,000 banks failed, wiping out the savings of millions of Americans. The failure of banks resulted in a loss of confidence in the financial system, leading to a significant decrease in lending and investment. This, in turn, deepened the economic crisis and prolonged the duration of the Great Depression.

In response to the banking crisis, the U.S. government introduced the Glass-Steagall Act in 1933. This legislation aimed to restore confidence in the banking system by separating commercial and investment banking activities, establishing deposit insurance, and creating the Federal Deposit Insurance Corporation (FDIC) to protect depositors' funds.

Overall, the Great Depression severely impacted the stability and functioning of banking institutions, leading to widespread bank failures, loss of public trust, and the need for significant government intervention to restore confidence in the financial system.