Banking Panics (Click here)
1. Banking Panic- Occurs when many depositors all lose confidence in the survival of banks and demand that they be paid in cash for their deposits. Banks need to liquidate loans in order to raise the required cash.
- Economic causes for bank panics: increase in farm debts, and U.S.
policies that stimulated small, undiversified banks, created an
environment in which banking panics were susceptible.
3. The decline in money supply discouraged spending in multiple ways. The most important way is that because of the price declines, businessman and consumers expected deflation and expected prices/wages to be lower in the future. Because of this, people did not want to borrow because they had a fear that future wages would be insufficient to cover their loan payments. This led to reductions in business investment and consumer spending.
2. The U.S. went through many banking panics between 1930 and 1933. In 1933, Franklin D. Roosevelt concluded the bank panics with the national bank holiday. The bank holiday forced all banks to close and they were only allowed open if government inspectors felt they would be successful.
- Economic causes for bank panics: increase in farm debts, and U.S.
policies that stimulated small, undiversified banks, created an
environment in which banking panics were susceptible.
3. The decline in money supply discouraged spending in multiple ways. The most important way is that because of the price declines, businessman and consumers expected deflation and expected prices/wages to be lower in the future. Because of this, people did not want to borrow because they had a fear that future wages would be insufficient to cover their loan payments. This led to reductions in business investment and consumer spending.