Bank Failures During Great Depression — Reading Comprehension

The Great Depression, which began in 1929, resulted in thousands of bank failures across the United States. As the economy collapsed, many Americans lost faith in the banking system. The stock market crash in October 1929 was a major trigger, but deeper economic problems had built up for years. Banks had taken risky loans and invested customers’ money in the booming stock market. When banks lost money, people rushed to withdraw their savings, causing even more banks to fail.

The causes of these failures were complex. One significant reason was that banks did not have enough reserves, or cash on hand, to cover all withdrawals at once. Banks had lent out most of their deposits, expecting customers would not all want their money back at the same time. This system worked only as long as people trusted the banks. When that trust evaporated, a bank run could start, as crowds demanded their money before the bank ran out. In some small towns, entire communities lost their life savings overnight.

Ordinary Americans, especially farmers and factory workers, faced terrible consequences. When banks failed, families could not access their savings to buy food or pay rent. Businesses, too, were affected. Without banks to lend credit, companies could not pay workers or invest in new equipment. This created a cycle of unemployment and more business failures. Bankers, on the other hand, argued that they had simply followed the economic rules of the time. Some felt unfairly blamed for a crisis caused by larger national and global forces.

Government officials disagreed about how to respond. President Herbert Hoover believed the economy would recover without direct government help, while many Americans demanded stronger action. In March 1933, President Franklin D. Roosevelt declared a "bank holiday," temporarily closing all banks. In his first fireside chat, Roosevelt explained, "Let me assure you that it is safer to keep your money in a reopened bank than under the mattress." This statement helped restore confidence. Soon after, Congress passed the Glass-Steagall Act, creating the Federal Deposit Insurance Corporation (FDIC), which insured bank deposits and aimed to prevent future panics.

Not everyone agreed with these solutions. Some bankers feared new regulations would limit their business. Others, including many customers, felt relief and a renewed sense of security. The changes did not solve all economic problems, but bank failures slowed and public trust gradually returned. The crisis revealed the need for balance between economic freedom and government protection.

The story of bank failures during the Great Depression shows how a lack of trust can threaten the entire financial system. It also highlights the importance of learning from mistakes and adapting policies to protect citizens. The government’s response, while imperfect, marked a turning point in U.S. financial history.

Interesting Fact: In 1933 alone, over 4,000 American banks closed their doors forever, wiping out the savings of millions of people.

When did the Great Depression begin?

Who was President in March 1933?

What did the Glass-Steagall Act create?

Why did people rush to withdraw money?

How did bank failures affect businesses?

What was one effect of the bank holiday?

Bank runs helped cause more bank failures.

What is a bank run?