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Differences In Banking Crisis

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Bank crisis.
Differences in banking structure
US economy in the 1920s:
There were two ways in which commercial banks could be characterised, i.e. nationally chartered banks and banks that were chartered by states. As branching was strictly forbidden by national regulators and most state regulators, this led to a majority of banks being unit banks. Unit banks were a serious problem in the twentieth century Great Depression especially, as it was “a system of banking in which the government restricts or does not permit a bank to open branch offices”. This hence means that unit banks were particularly susceptible to failure if the local economy of the community they were established in began to struggle. This would initially have a severe economic …show more content…

There were several key flaws in the US banking system such as the lack of regulation by US banks during the major period of the 1920s, more specifically the level of speculation, buying on the margin and the failure of banks to withstand the initial economic recession. Soon, the bank closures began to occur almost inevitably and the US economy thus underwent a period of contraction in the money supply. As neoclassical economists have frequently attributed the level of money circulating in an economy to the rate of inflation, the result of a fall in the supply of money was that the purchasing power of consumers fell. Purchasing power and consumption fall together, and as consumption is one of the components in calculating aggregate demand, one would be able to identify the sharp decrease in the total demand for goods and services by American consumers during the Great …show more content…

However, this would be largely unsuccessful considering the nature of the price elasticity of demand during a recessionary period. As most people have low confidence in the macroeconomy, this suggests that their demand for products would more likely be price inelastic. In this case, the fall in prices of goods and services has little effect in raising firms’ revenue, as the quantity demanded by consumers drops by an even greater proportion. Additionally, firms and producers are likely to resort to reducing their production costs by laying off workers, and thus the US economy saw at least 13 million people unemployed by the end of

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