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The Great Depression Of 1930 Essay

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The Savings and Loans institutions were made in United States during the period of great depression to construct and sell the houses to save it from another disaster like that of 1930. During that time banks went through huge losses nationwide. 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. 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 money market). There were some provisions under this act such as Regulation Q, which provided the ceiling to the interest rates that could be offered to the depositors by the bank. It also established Federal deposit insurance corporation (FDIC) which provides an insurance cover to the …show more content…

As William Black coined the term “control fraud” which denotes that this savings and loan debacle was due to the fraud done by the people in power, who run those large corporations. The savings and loans institutions or thrifts were built to provide the housing facilities to the local communities. Basically they were built for single house families. Keeping this goal in mind it provided individuals with low interest loans. But by 1970s this model began to change when the interest rates started rising. Depositors started withdrawing their money from thrifts which led to outflow of money from these thrifts. The structure of savings and loans were built to provide low interest on savings and low interest loans for a short period of time but after 1930s they were encouraged to make loans for long term because government had already increased the deposit rates which made savings and loans institutions less attractive. This mismatch led the thrift industry into the

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Due to the widespread panics that were causing banks to go out of business, banks were in need an emergency reserve so in times of panic. In 1907, the sever panic wreaked havoc on the banking system as the banks did not have enough supply to keep up with the demand of the withdrawals (In Plain English, n.d.). Wide spread panic in

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Confidence in the banking system was completely shattered during this period owing to unregulated competition in the banking sector which allowed deposit interest rates to escalate and riskier loans being made to “bad borrowers” at even higher rates. This system ultimately led to the collapse of the entire system and bank failures became rampant. This experience of the Great Depression initiated a period of regulations in the banking and finance industry and the Banking Act brought about a number of major reforms. The Regulation Q was an important provision of the act which set a maximum rate of interest that could be paid on time deposits. However, in order to encourage investment in the housing industry, Regulation Q made relaxations for the Savings and Loans institutions whereby these firms could pay interest rates on deposits that were slightly higher than that paid on other kinds of deposits.

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During the Great Depression, the banks were affected. It caused many of them to fail because of deflation. Bankruptcy was also a problem then, because of the stock market crash. This caused many people to want to get their money and led to bankruptcy. From 1930-33, about 1,000 banks had to close.

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