BY NATHAN AND AUSTIN
How was bank failure a factor to the 1920's Great Depression?
The banks lent out too much money to stock investors and expected them to give back a higher return but didn't. Banks then started to cut back on their loans but still ended up being in a debt because they weren't making much profit back from the people. It put the economy into recession.
- The banks took the money the people gave them and loaned it out to other people.
- The banks gave out money and charged them interest to get a big return.
- Banks made more profit before the Great Depression than present day.
The banks could've loaned less and could've had a lower expectation from stock investors because they tried to give more out and wanted more back in return. They should've just kept making profit from collecting interest from people's loans instead of trying to invest more money.
Could this happen again today?
No because banks today have FDIC ( Federal Deposit Insurance Corporation ). It's used to insure bank deposits up to $250,000. It keeps an eye on what's happening and addresses problems to the deposit insurance fund. It also helps limit effects on the economy if banks were to fail.