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How To Prevent Savings And Loans During The Great Depression

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The Savings and Loans institutions were made in United States to provide common people with low interest loans to built houses. During the period of Great Depression in 1930s, banks went through huge losses nationwide. At that time, these institutions emerged as successful institutions. Though they suffered losses, some depositors withdrew their money from them. But Savings and loans institutions recovered from those losses successfully. The Great Depression of 1930 changed the attitude of financial markets and also the way they were regulated. After that experience government took some measures and passed some acts. The purpose was to prevent any such losses in future and to regain the trust of depositors. First was the Glass–Steagall Act 1933. It was designed to separate the banking (which provides credit for lending money to the borrowers) and non-banking activities (such as trading in …show more content…

Inflation rose to 10 or 11% and with high inflation there was a huge volatility in the interest rates. With the rise in interest rates people got their money out of the thrifts because they were offering low returns and there was a requirement to maintain capital reserves under thrifts. So, the investors started investing in money markets which was offering them higher returns because the money market was not governed by the Regulation Q (regulation of interest rate) and there was no requirement for maintaining capital reserves. Initially, Savings and loans institutions were making money by lending at low interest rates. But overtime it was believed that government should remove the restrictions that it had imposed on the thrifts and allowed it to deal in other financial securities as well, in order to provide benefits to the customers. Government took measures to make thrifts more competitive and beneficial but the steps that were taken to resolve the issue came out to be as the cause of such a huge

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