The revolution in the Banking Theory

Summary

                During the time of the Great Depression, there were three major trends that could be seen within the banking system. One trend that led up to the depression were banks being unable to give people’s money back. In eight years, one sixth of banks in the United States were unable to give money back to the depositors. Another trend that could be seen within the banking system was the restriction of branching. Due to restrictions of branching within in the bank system, many banks started to chain together in corporations and partnerships. The last trend that could be seen was merging.  Banks started to merge which in turn led to weakness in the banking system. During the time period of the depression, the national bank was no longer capable of keeping up with the state banks. The state banks found loop holes with the prohibition of branching. New York for example continued to branch, but in city limits because of the scattered people living in the city. Since the people were in city limits, it did not alter the idea of a unit bank.

Analysis

                The article shows three main trends in the banking system that led up to the Great Depression. Banks were no longer able to give people their money, the restriction of branching, and banks merging. It is safe to say that many phenomenons occurred within the banking system in order to cause the depression. It is hard to believe that just one of these occurrences could of led to such a detrimental period in American history.

Question

Do you think that just one of the trends listed above could of caused the Great Depression?

 

Citation

Ostrolenk, B. (1930, February). The revolution in banking theory. The Atlantic , Retrieved from http://www.theatlantic.com/magazine/archive/1930/02/the-revolution-in-banking-theory/7111/

Summary/Analysis

Summary

                The Great depression was a time of struggle for Americans due to country-wide bank failures from 1929-1941. Many things within the banking system had happened that led up to the crash. The banking system grew too rapidly to control. There were more banks opening than the population demanded. From 1921-1930 many small banks opened in agricultural regions of America. The only reason so many small banks could open was because the money needed to open a bank during that time period decreased significantly. The results were unqualified people opening banks and too many banks opening at the same juncture in time. In 1929, 22 states stopped banks from branching. This was a punch to the face for banks, because it forced them to only stay in one geographic area for lending. This prohibited them from diversify, which made it hard to survive when the local economic status was at a low. Some say that contagion also had a factor in the crash, but others discredit the idea. Contagion in this text is referred to as, healthy banks failed due to trouble with more prominent banks. The reason why some people discredit the idea is because in the 1920’s contagion was not a factor in those bank failures, therefore there is no reason for it not playing a role in the 1920’s and then playing a role in the 1930’s.

Analysis

                There are many reasons why The Great Depression took place. Too many banks opened in unison for the population to support. People who were unqualified opened banks. In 1929 banks could no longer branch, which made it harder to stay afloat and function successfully. Contagion may have played a role, but many people are skeptical to say so because of the 1920’s crash. Contagion did not cause those crashes so; it is hard to believe that is caused the crash a decade later. It was not just one straight reason as to why the banking system flopped, but many reasons that can be further explored.

Reflection question

                Do you think that contagion played a role in the crash of the banking system?

Citation

Walter, John R. "Depression-Era Bank Failures: The Great Contagion or the Great ... "

QUARTERLY. ECONOMICWinter 2005: 39-54. SIRS Government Reporter. Web. 12 Feb 2012.

The Question

       I have always had a love for history. Throughout my time in the school system history class have hands down been my favorite subject. In eighth grade I took American history and that is when I knew I had found my passion. I have always enjoyed history because it amazes me what had to happen in the past for us to be here today. Keeping my love for Ameican history in mind, of course, I had to pick a topic in that. What better than the Great Depression since it does have basis in our current recession striken state.

What events led up to the Great Depression in American history?