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Rural banks failed because farms failed in large numbers in the 20s. Less than 10 years earlier during WW 1, farm production had reached record levels because France and England had become dependent on US grain. This meant that farmers invested heavily in machinery, storage facilities and new land development, and the rural banks gave out huge amounts in loans to finance all that.
But after WW 1 and starting in 1920, England and France could once again grow their own crops; Prohibition meant that the demand for barley - normally required for the production of beer and spirits - plummetted; and Canada became a big wheat producer and a serious competitor fort US wheat.
The result: prices fell dramatically, farms had to close down and loans from the rural banks could not be repaid. With huge amounts of unpaid debts to write off, the collateral (the farms themselves) having become worthless, rural banks started to fail in large numbers.
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