What were the causes and effects of the collapse of the banking system during the Great Depression?

What were the causes and effects of the collapse of the banking system during the Great Depression?

The collapse of the banking system during the Great Depression was primarily caused by a combination of factors. One major cause was the stock market crash of 1929, which led to a loss of confidence in the financial system. Additionally, there was widespread speculation and risky lending practices by banks, which resulted in a high number of bad loans. The lack of government regulation and oversight also contributed to the collapse.

The effects of the banking system collapse were severe. Many banks failed, leading to the loss of people's savings and investments. This caused a significant decrease in consumer spending and investment, further worsening the economic downturn. The collapse also resulted in a credit crunch, making it difficult for businesses and individuals to access loans and credit. This led to widespread unemployment, bankruptcies, and a decline in overall economic activity. The collapse of the banking system was a major factor that deepened and prolonged the Great Depression.