Why were there widespread bank closures in 1929?

Answer 1

The main reason that the banks closed, was because of "a run on the banks." This was people who would rush to the bank, to take their money out. Also, because of bad regulation of the federal government, the banks were in terrible shape.

In 1933, after Franklin D. Roosevelt, took over the office of President of the United States, he went to work on the "New Deal," he promised to the country.

President Roosevelt's first task was to reopen the banks. He first closed every bank in the country by declaring a nationwide "bank holiday." He then authorized the treasury to supervise the reopening of only those banks which were financially sound. He went on the radio in a Fireside Chat to explain the government's movements and plead for confidence. Within days many of the banks were open, and depositors returned with their funds. By April confidence was restored and the crisis ended.

To prevent a recurrence of the panic, Congress created the Federal Deposit Insurance Corporation (FDIC). People no longer needed to fear bank failures, for the government guaranteed that their funds were protected.

Answer 2

The stock market crashed (stocks lost about half of their value) in October 1929. Many banks had invested in stocks, and so could no longer sell them at what they had been expected to be worth. Also many lenders used stocks as collateral. These were now not worth as much so the banks could not recover their loans. Therefore banks failed.

Answer 3

Many banks collapsed in 1929 from when the Stock Market crashed that year. Between 1929 and 1933, two out of every five banks collapsed. It was known as the Great Depression.