How did bank failures contribute to the Great Depression?

Answer 1

The failure of the Creditanstalt in Austria in 1931 (and to a lesser extent the Bank of the United States a year earlier) was key to altering what had been a deep recession (but not significantly different from the Panics of 1873 and 1893) into the Great Depression. What made the Great Depression into the dramatic worldwide economic failure of the 1930s were the interconnections among the banking systems of the world following World War I. Prior to the First World War, economic collapse in one country did not necessarily lead to worldwide economic collapse. However, by virtue of war debt payments by the allies to the USA, reparations payments by Germany to the France & the UK, and loans to Germany and Austria by the USA the banking world became locked in an endless circuit of money exchanges. While this was going on, central bankers had a compulsion to promote the gold standard. As a result, they would raise interest rates in an effort to ensure that gold did not leave their respective countries. Because of the increasingly higher interest rates banks were forced to charge, they could not in many cases collect debts, which ultimately resulted in their collapse. With no low interest loans available because of the relatively weak banking sector, and central banks in Western Europe and the United States refusing to lower their interest rates, the massive recession morphed into the Great Depression.

Answer 2

The crash of the stock markets and the bank failures were tied together and both helped to cause the Great Depression. People were purchasing items on credit, not cash which helped to cause the Stock Market to fail. When the stock market crashed the bank no longer had any financial backing and they did not have the funds to pay people their money.

Answer 3

the lend lease act was one reason.