How did the creation of the Federal Deposit Insurance Corporation (FDIC) help end the banking crisis?

Answer 1

It's important to understand that banks don't hold on to all of the money that is deposited at them: they loan it out, and then some of the interest from those loans goes back to the deposit holders.

They can do this because, under normal circumstances, not everyone is going to withdraw all of their money at once. By the time the bank needs to give people their money back, they'll have made it back from loans. But during the Depression, people were withdrawing so much money from banks that the banks ran out of money. That happening caused people to panic and withdraw money from banks, because they saw that it wasn't safe there, and that in turn caused more banks to collapse.

The FDIC essentially exists to ensure that this can't happen. As the name implies, they insure your deposit. That is to say that if you try to withdraw money from a bank and the bank doesn't have it, then the FDIC covers it. Because of this, people felt safe putting their money into banks again.