Following the Wall Street Crash of 1929, the USA was in a state of crisis known as the Great Depression. It caused devastation worldwide due to the international loans that the USA had made worldwide. In the 1920s there was huge optimism over the future in America and therefore even ordinary people had invested in the stock market by taking loans from the banks. It also meant many people lost a large amount of money or assets after the Wall Street Crash because their shares in stock were worthless. Unemployment increased by around 25% because of plummeting demand for consumer goods, which meant less jobs. Although there are many factors for assessing the significance of the New Deal, this essay will focus on the impact on banks. The significance
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At the start of the Great Depression, the economy was heavily suffering through bank runs, which had been caused by people losing confidence in the banking system and withdrawing their deposits to the point where banks had become insolvent. In the end of the period of 1929-33, 40% of all banks in America had failed. Many American banks were inefficiently run and this caused Roosevelt to act in 1933. He introduced the Emergency Banking Act, which declared a national bank holiday for four days, closing all the banks until they had been inspected by the federal government. This was significant because it was a big step towards creating reliable banks, as only approved banks were able to open, decreasing concerns of bank insolvency. This would ultimately encourage people to deposit their money into banks as they had done in the past. Two months later, gold was to be sold to the Federal Reserve for a set price to stop assets being panic-exported out of the country, and to increase the Reserve’s power to inflate the dollar, which they hoped would boost the economy out of the Depression. The banks would benefit because people would be receiving dollars for their gold, increasing the …show more content…
The closing of all banks in 1933 so they could be inspected (one of the first actions Roosevelt took) did have its problems. By the end of 1933, about 1,000 banks that had been reopened were in liquidation or receivership, showing that perhaps the inspection of banks, while increasing the public’s confidence, did not solve the problem of irresponsible banks as much as originally thought. The Glass-Steagall legislature increased this idea of regulation because of the restrictions it placed on banks, but loopholes existed. For example, savings and loans that did not belong to the Federal Reserve System were not restricted. Although a bank could not be affiliated with a company which was involved in speculation on the stock market, banks would get around this by affiliating with companies which were indirectly involved. These kind of loopholes meant the full restrictions of the Glass Steagall Act were not felt, and suggests the banking acts were not implemented as originally envisioned, lessening their significance. In contrast to these restrictions, the Banking Act allowed banks to branch nation-wide for the first time, meaning much larger potential for profit and stability for banks. The FDIC, which was introduced under the same act, did affect banks very significantly, insuring all bank deposits up to $5,000. Unfortunately, by the end of 1933, thousands of smaller banks had to be merged into big
At the start of the Great Depression, the economy was heavily suffering through bank runs, which had been caused by people losing confidence in the banking system and withdrawing their deposits to the point where banks had become insolvent. In the end of the period of 1929-33, 40% of all banks in America had failed. Many American banks were inefficiently run and this caused Roosevelt to act in 1933. He introduced the Emergency Banking Act, which declared a national bank holiday for four days, closing all the banks until they had been inspected by the federal government. This was significant because it was a big step towards creating reliable banks, as only approved banks were able to open, decreasing concerns of bank insolvency. This would ultimately encourage people to deposit their money into banks as they had done in the past. Two months later, gold was to be sold to the Federal Reserve for a set price to stop assets being panic-exported out of the country, and to increase the Reserve’s power to inflate the dollar, which they hoped would boost the economy out of the Depression. The banks would benefit because people would be receiving dollars for their gold, increasing the …show more content…
The closing of all banks in 1933 so they could be inspected (one of the first actions Roosevelt took) did have its problems. By the end of 1933, about 1,000 banks that had been reopened were in liquidation or receivership, showing that perhaps the inspection of banks, while increasing the public’s confidence, did not solve the problem of irresponsible banks as much as originally thought. The Glass-Steagall legislature increased this idea of regulation because of the restrictions it placed on banks, but loopholes existed. For example, savings and loans that did not belong to the Federal Reserve System were not restricted. Although a bank could not be affiliated with a company which was involved in speculation on the stock market, banks would get around this by affiliating with companies which were indirectly involved. These kind of loopholes meant the full restrictions of the Glass Steagall Act were not felt, and suggests the banking acts were not implemented as originally envisioned, lessening their significance. In contrast to these restrictions, the Banking Act allowed banks to branch nation-wide for the first time, meaning much larger potential for profit and stability for banks. The FDIC, which was introduced under the same act, did affect banks very significantly, insuring all bank deposits up to $5,000. Unfortunately, by the end of 1933, thousands of smaller banks had to be merged into big